The purpose of this paper is to propose a practical branch and bound algorithm for solving a class of long-short portfolio optimization problem with concave and d.c. transaction cost and complementarity conditions on the variables.
We will show that this algorithm can solve a problem of practical size and that the long-short strategy leads to a portfolio with significantly better risk-return structure compared with standard purchase only portfolio both in terms of ex-ante and ex-post performance.
Keywords portfolio theory - long-short portfolio - concave cost - d.c. cost - branch and bound algorithm - global optimization