constrained optimization

Another Schweser Q that doesn’t make sense to me: Constrained optimization usually involves an additional constraint that: A) all asset class weights are non-negative. B) asset class weights add up to 1. C) all asset class weights are positive.


What’s the difference between A and C … lol

Your answer: B was incorrect. The correct answer was A) all asset class weights are non-negative. The weight of all asset classes adding up to one is part of un-constrained optimization. Constrained optimization has an additional constraint that the weights of all the asset classes should be non-negative. what is Schweser thinking when putting out these Qs? So non-negative means “0 + positive”? are they testing us on basic math?? urrr…

0 and minus

A) > 0 or = 0 C) > 0

because they use the word “constrained”, meaning no short sales is allowed and non-negative weight.

Think like this: Short = Negative; So no short sales = non-negative.

But weights can be 0, which is also a non-negative number…which is why it cannot be C

sparty’s right. constrained optimization doesn’t mention anything about being unable to avoid an asset and have weight=0. you just can’t short it and have weight <0