Portfolio Rebalancing for Small Investors: Modeling and Solving Procedure

One of the main concerns of investors in financial market is reduction of risk and achieving desired return. One of the ways that reduce risk, is creating portfolio; but due to market changes, the optimal portfolio will not be stable and it is necessary to be control and rebalancing. Generally, investors in financial market are divided into two categories: real investors and legal investors. The volume of real investors' capital is little and is called small investors, too. Portfolio selection and rebalancing for small investors need attention to their criteria and limitations that are not considered in the classic financial models such as Markowitz’s model. These criteria are transaction cost, dividend, systematic risk and transaction units. In this study, a multi-objective and comprehensive model are provided that addresses the goals and limitations of small investors. For this purpose, the lexicographic goal programming is used and a mixed integer programming model is provided. Finally, the model is solved with actual data and the results are analyzed.