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Aug 21

Markowitz Efficient Frontier stock portfolio

Posted by abiao at 16:51 | Code » VBA/Excel | Comments(1) | Reads(27838)
The efficient frontier was initiative specified by Markowitz in his innovative  report . The theory deals an amounts of risky products and searches an optimal portfolio based on those possible investments.

Given a time interval, we could impute expected returns and volatilities. We could also specify a correlation of returns. The  "optimal" portfolio can be formed in two methods:

first:   for a certain level of volatility, count all portfolios that equal this volatility. amongst them all, choose the one with highest expected return.
second: for a given expected return, count all portfolios having this expected return. Choose the one which has the lowest volatility.

often numerical calculation is applied for optimization as we have additional constraints on the optimal portfolio, for instance, weight limits, etc. below is an Excel file demonstrating many assets Efficient Portfolio can be generated.

wiki(Capital asset pricing model)

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