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Model

Let the investments be numbered 1...5, and let tex2html_wrap_inline941 be the amount invested in investment i. Let tex2html_wrap_inline977 be the amount in the savings account. The objective is to maximize

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subject to

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Now, let's look at the average risk. Since we want to take the average over only the invested amount, a direct translation of this constraint is

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This constraint is not linear, but we can cross multiply, and simplify to get the equivalent linear constraint:

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Similarly we need

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or

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The final constraint is

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Together with nonnegativity, this gives the entire formulation.



Michael A. Trick
Mon Aug 24 14:40:57 EDT 1998