Due: Tuesday, February 18th (NOTE REVISED DUE DATE)

Either turn in during class or bring to Dr. Fraticellis office (225 Durham) by 3:15 PM

ISE 5406 Homework #1

Reminder: All homework assignments are individual in nature. While you may discuss the problems and a general solution approach with other students, the work you turn in must be your own. All assignments must be written independently. Throughout, BSS refers to exercises in the course textbook by Bazaraa, Sherali, and Shetty. 1. An investor has $5000 to spread between two potential investments. Let represent the amount (in thousands of dollars) invested in option j = 1,2. Investment options 1 and 2 have expected annual return of 20 and 16 percent, respectively. The total risk, as measured by variance of total return, is given by . The investor would like to maximize return while minimizing risk, so he has combined his objective into one goal: maximize [ ]. Note that the non-negative constant represents the tradeoff between risk and return. a. For the values of and , use calculus to find the unconstrained maximum

of the objective function (ignore the $5000 investment limit). Specify the optimal values of and . b. For each of the values in part a, solve the constrained version (include the $5000 investment limit) using a graphical approach and algebra. Specify the optimal decisions.

2. BSS 2.8

3. BSS 2.10 (Note: It is referring to Lemma 2.1.2 on p. 41 of the textbook.)

4. Consider the following set .

with

and

a. Classify S and T as open/closed and bounded/unbounded. Are they compact? Are they convex? b. Mathematically characterize the interior and boundary of S and of T. c. Mathematically characterize the convex hull of T, . d. Classify as open/closed and bounded/unbounded. Is it compact?

5. Let

and

a. Find the point that is closest to y, and give its distance from y. b. Find the hyperplane (from the closest point theorem) that separates S and y.

6. Suppose that the univariate function is concave for function f (of two variables) is defined by for

and that the

a. Is f concave? If so, prove it using definitions. If not, explain why. b. Is f strictly concave? If so, prove it using definitions. If not, explain why. 7. BSS 3.10

8. Suppose that is a convex set and that is a convex function. Let the points and with be given. Prove that ( ) . (This is the generalization for convex functions that was stated on page 42 of the course notes without proof.) 9. BSS 3.61 (Prove the result by considering level sets of the function .)

10. BSS 3.61 (Prove the result by showing that assume, without loss of generality, that

. You may .)

11. Construct the 0th, 1st, and 2nd order Taylor series approximations for the following univariate functions about the point . Provide a computer graph of the function and each of the approximations for . a. b. c. 12. Construct the 2nd order Taylor series approximations for the following functions with the given points . a. b. about about