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APPLICATIONS OF OPERATIONS RESEARCH IN INVESTMENT PORTFOLIO ALLOCATION: A LITERATURE-BASED ANALYSIS OF LINEAR PROGRAMMING MODELS

AUTHORS:
Pragya Shukla
Ria Kaur Ahuja
Prisha Mantri
Parth Chachan
Rayhan Sheikh
Mentor
Affiliation
Linear Programming Problem (LPP)
CC BY 4.0 License:
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
Investors with a fixed budget must decide how much to put into each of several stocks, balancing return against risk. The classical answer, Markowitz's mean–variance model, is a quadratic programme that becomes heavy as the number of stocks grows. This paper reviews two published studies that solve the same problem with linear programming instead. Papahristodoulou compares a quadratic model with a maximin model and a mean-absolute-deviation (MAD) model on five Stockholm stocks. Kucukbay and Araz build a portfolio from 89 Borsa Istanbul stocks using linear physical programming (LPP) and fuzzy goal programming (FGP). For each study we set out the real-life problem, the mathematical model, the solution method, the results and the weaknesses. In the first study the author reports the MAD portfolio as close to the quadratic one while avoiding the covariance matrix, although on the published figures its risk sits nearer to that of maximin. In the second, the LPP portfolio had the best Sharpe index in the test year (0.43, against 0.36 for FGP and 0.26 for the market index). Both studies rest on small samples and short test periods, so their results show that linear models are practical, not that they are best.

 

 
Keywords
operations research; linear programming; portfolio selection; mean absolute deviation; maximin; goal programming; Sharpe index
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Shukla, P., Ahuja, R. K., Mantri, P., Chachan, P. & Sheikh, R. (2026). Applications of Operations Research in Investment Portfolio Allocation: A Literature-Based Analysis of Linear Programming Models. International Journal of Science, Strategic Management and Technology, 02(10), 1-9. https://doi.org/10.55041/ijsmt.v2i10.038

Shukla, Pragya, et al.. "Applications of Operations Research in Investment Portfolio Allocation: A Literature-Based Analysis of Linear Programming Models." International Journal of Science, Strategic Management and Technology, vol. 02, no. 10, 2026, pp. 1-9. doi:https://doi.org/10.55041/ijsmt.v2i10.038.

Shukla, Pragya,Ria Ahuja,Prisha Mantri,Parth Chachan, and Rayhan Sheikh. "Applications of Operations Research in Investment Portfolio Allocation: A Literature-Based Analysis of Linear Programming Models." International Journal of Science, Strategic Management and Technology 02, no. 10 (2026): 1-9. https://doi.org/https://doi.org/10.55041/ijsmt.v2i10.038.

References
Konno, H. and Yamazaki, H. (1991). Mean-absolute deviation portfolio optimization model and its applications to Tokyo stock market. Management Science, 37(5), 519–531.

Kucukbay, F. and Araz, C. (2016). Portfolio selection problem: a comparison of fuzzy goal programming and linear physical programming. An International Journal of Optimization and Control: Theories & Applications (IJOCTA), 6(2), 121–128. https://doi.org/10.11121/ijocta.01.2016.00284

Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1), 77–91.

Papahristodoulou, C. (2002). Optimal portfolios using linear programming models (working paper). Mälardalen University, Västerås, Sweden. Available at Optimization Online: https://optimization-online.org/wp-content/uploads/2002/10/549.pdf

Papahristodoulou, C. and Dotzauer, E. (2004). Optimal portfolios using linear programming models. Journal of the Operational Research Society, 55(11), 1169–1177. https://doi.org/10.1057/palgrave.jors.2601765
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This article has undergone plagiarism screening and double-blind peer review. Editorial policies have been followed. Authors retain copyright under CC BY-NC 4.0 license. The research complies with ethical standards and institutional guidelines.
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