An optimal diversification network model with fixed-solution universe subsets

This paper develops a generalized dynamic network model for portfolio investment diversification. The model considers the situation of the fixed solution subset corresponding to a fixed single-resource economic investment such as that found in many oil-producing nations. Quadratic side constraints on the variance of the resultant flow distribution are added to the model to accommodate uncertainty. The model has been tested using a prototype example. The results indicate that the risk associated with a single-resource investment can be reduced by determining optimal investment weights.