Financial control of portfolio management decisions

Abstract

‘Portfolio’ management is usually characterized by a limited quantity of re-source to be allocated among a number of possible uses when various levels of resource could be allocated to each use and where significant uncertainty and associated risk is involved. The amount of resource available may be limited in a strict sense, but this need not be the case. A typical example would be the selection of a portfolio of securities. A less obvious example would be the allocation of crops to farm land. There is a large number of other important applications.

The initial development of the approach outlined in the fourth section was stimulated by High Lavis of IBM UK, for presentation at an IBM seminar in London. It was subsequently presented to the Operational Research Society Annual Conference, September 1989, Southampton University, and the IBM European Institute, Financial Mathematics and Computing, July 1990, Oberlech, Austria, at the invitation of Diem Ho, IBM France, This written version was the first prepared. Another version will be prepared for publication with other IBM European Institute papers in the Journal of Applied Stochastic Models and Data Analysis. The authors are grateful for the comments of a number of colleagues, in particular Chris Burke, Mahmoud Ezzamel, David Heathfield, Michael Page, Philip Powell and Charles Sutcliffe.