Title:
Application of Linear Programming Model in Investment Portfolio and Loan Portfolio Optimization

Authors:
Charles Ogboi Ogunwale Olurotimi Ogunwole Joshua Olatunde Emordi Nwabunwnne Blessing, Nigeria

Abstract:

Optimizing investment and loan portfolios is paramount for institutions aiming to maximize returns while mitigating risks. Linear programming (LP) as a mathematical optimization technique, offers a structured approach to address these challenges by determining the best allocation of limited resources under given constraints. Despite its advantages, the application of LP in financial portfolio optimization is not without challenges. The accuracy of LP models heavily relies on the precision of input data, such as expected returns, risk assessments, and correlation coefficients. Extant literature had shown how linear programming models can be used to optimize output in non-financial sectors such manufacturing, while literature on its application in investment portfolio planning and loan portfolio in investment and loan planning is scanty. This study explored the application of Linear programming model to investment portfolio and loan portfolio optimization. This study adopted case study research design with analytical modeling. Two case studies were analysed using excel solver. Results showed that linear programming model can be applied to maximize portfolio investment and loan portfolio returns while keeping risk within acceptable limits. This study concluded that finance practitioners can systematically evaluate investment options and constraints, leading to data-informed choices that align with broader strategic goals. It is therefore recommended that finance practitioners should continue to leverage linear programming tools, such as Excel Solver, for financial asset portfolio optimization.

DOI: https://doi.org/10.51505/IJEBMR.2025.9529