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Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 200 of
Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 200 of C. The current share prices are $42.76, $81.33, and $58.22, respectively. The expected returns and the covariances are provided in the table below. Stock A Stock B Stock C Expected Return 12.00% 9.40% 14.00% Covariance Stock A 0.09164319 00188809 00022386 Stock B 001888085 0.03885393 00005562 StockC 00023864 00005562 00080718 1. Compute the expected return of your current portfolio. 2. You want to trade stocks so that your new portfolio's return can be no less than 13% while minimizing new portfolio's risk (standard deviation). There is a 1% fee on selling or trading each stock. For example, if you sell 10 shares of Stock A and buy 5 shares of Stock B, the total dollar amount traded is 10*$42.76+5*$8l.33:$834.25 and you have to pay a transaction fee of $8.34. These two transactions generate a net amount of 10*$42.76 - 5*$81.33 - $8.34 =$12.6l in cash. You would like this net amount to be always non- negative but no more than $5. Also, you cannot have short position in any stock, i.e., you cannot sell more than what you have. Formulate a nonlinear optimization model with integer constraints that determines the number of shares of each stock to buy and sell
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