StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Portfolio Optimization - Research Paper Example

Comments (0) Cite this document
Summary
In order to achieve portfolio optimization the investor has to allocate the portfolio in different asset classes. The most beneficial way to…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER91.1% of users find it useful
Portfolio Optimization
Read TextPreview

Extract of sample "Portfolio Optimization"

Affiliation: Portfolio Optimization Asset Allocation A variation of different assets will provide the investor with a variability of return in the investor’s portfolio and reduce the risk. In order to achieve portfolio optimization the investor has to allocate the portfolio in different asset classes. The most beneficial way to allocate the assets is to let a global touch permeate the portfolio. Look at different national markets in order to find independency, hence reduce the risk (Litterman, 2003).
In order to attain optimization at a national level it is of great importance to look at different type of sectors and industries, this is supported by Litterman (2003). ). The investor treats the national market as a global market with all its different industrial sectors where each sector symbolizes a national market. The diverse industrial sectors are to some extent uncorrelated and will provide a positive excess return and consequently should be added to the portfolio.
Independency and diversification is of significance to attain optimization, and allocating assets in different type of industries is what the investor practically does to achieve optimization.
Search for the window of opportunity with mathematical tools, the statistical result gives the investor an indication of the suitability of the opportunity in the perspective of the investor’s aversion to risk. When allocating the portfolio from a global point of view, it is important to be aware of that the transaction costs probably will rise to a great extent (Litterman, 2003).
Efficient frontier
The efficient frontier solves the question of how to identify the best level of diversification. The concept of an efficient frontier can be applied in a number of ways. In essence, an efficient frontier is a curve on a graph representing the relationship between return and risk for a set of portfolios. For a portfolio to be on the efficient frontier, the portfolio must maximize return for a given level of risk (Litterman, 2003).
It is simple concepts that risk and return are linked together and that there is a relationship between them, and thus there could be a way to determine the degree of risk that would be required for various levels of return. According to Litterman (2003). it is hard to generate high returns without exposing yourself to some kind of risk.
Litterman (2003).devised what he called the efficient frontier, a trade-off graph with the expected return on one axis and risk on the other axis. It is a curve representing all portfolios that maximize the expected return for a given level of risk. The efficient frontier is simply a line drawn from the bottom left to the top right where each point on that line represents an intersection between potential reward and its corresponding level of risk. The most efficient portfolio is the one that gives the highest return for a given level of portfolio risk.
Minimum Variance Portfolios/ Minimum Risk
Mean-variance dominance allows us to partially rank portfolios. The minimum mean variance in a portfolio helps us greatly reduce the number of portfolios that we need to consider in an investment decision by identifying those portfolios in the opportunity set of portfolios that no risk-averse mean-variance utility maximizer will choose to hold.
Optimal risky portfolio/ Maximum Return
The more risk averse an investor is, the lower will the optimal portfolio be on the efficient frontier. According to Litterman (2003). all investors will choose a portfolio that is the optimal risky portfolio.
Which portfolio that is chosen as the optimal, depends on the investors decision rule4 However, Litterman (2003).disregards the need to have all results evaluated by the individualinvestor with these indifference curves. The only portfolio that is optimal according to Litterman (2003). is the one that is tangent between the CAL and the Efficient Frontier.
Resources
Litterman, B. (2003). The Quantitative Resource Group, Modern investment management. John Wiley
& Sons, Hoboken, New Jersey. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Portfolio Optimization Research Paper Example | Topics and Well Written Essays - 500 words”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1672017-portfolio-optimization
(Portfolio Optimization Research Paper Example | Topics and Well Written Essays - 500 Words)
https://studentshare.org/finance-accounting/1672017-portfolio-optimization.
“Portfolio Optimization Research Paper Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/finance-accounting/1672017-portfolio-optimization.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Portfolio Optimization

3 D optimization

...Aerodynamic shape optimization for a 3d multi-element airfoil Aerodynamic shape optimization for a 3D multi-element airfoil ABSTRACT This paper discusses the uses of shape morphing/optimization in order to improve the lift to drag ratio for a typical 3D multi-element airfoil. A mesh morpher algorithm is used in conjunction to a direct search optimization algorithm in order to optimize the aerodynamics performance of a typical high-lift device. Navier stokes equations are solved for turbulent, steady-state, incompressible flow by using k-epsilon model and SIMPLE algorithm using the commercial code ANSYS Fluent. Detailed studies are done on take-off/landing flight conditions; the results...
6 Pages(1500 words)Research Paper

Resistor manufacture and optimization

...Resistor Manufacture and Optimization Abdlkareem Abuauref Engineering Science II: Electrical Engineering Swansea Metropolitan Dr. P. Charlton March 21, 2012 Introduction The following is an analysis of resistors, their manufacture and optimization. The paper uses literature review to create understanding of the current resistor types as well as the various manufacturing techniques in the first part of the discussion. The second part of the discussion involves analysis of resistor manufacturing output. Analyses of resistor manufacture output involves understanding of two sets of data for two identical machines that are used in production. Through development of a histogram, the available data is analyzed in order to establish the objective...
10 Pages(2500 words)Book Report/Review

Production system optimization

...Production System Optimization Production System Optimization In this production system project, the aim is to produce calculations that will maximize the efficiency and the productivity of the assembly lines (Gregory & Kuzmich, 2004). This evaluation is done with an emphasis on the LV Doors as the assembly line where production level can be evaluated and increased. The efficiency of the assembly lines is calculated as: E = ((A + B + C + D) / (N * Cd)) * 100 Where A, B, C and D are the Cycle times, N is the minimum number of work stations required and Cd = production time available / the desired output units At present, the efficiency is 94 %. It can be improved by either increasing the cycle times at every LV Door or by reducing...
2 Pages(500 words)Coursework

Channel Optimization

...Theme: An organization can meet its customers’ expectation through optimization of distribution channels Studies have shown that, top companies excel and continue to make profits throughout the year including recession durations. This is because they not only know what the customer want, but also know, how and where they buy it from. Optimization of distribution channel, is therefore critical for any organization’s success (Kotler & Lee, 2007). There are four tips for optimizing distribution channels; involvement of high level management, asking the right questions, performing an inventory optimization study and making sure there is adequate labor (Kotler & Lee, 2007). Involvement of high level management Most organizations, do...
1 Pages(250 words)Essay

Business Optimization via IoT

...BUSINESS OPTIMIZATION VIA IOT + Submitted The Internet of Things is a where animals, people or objects are presented with distinctive identifiers as well as the aptitude to transmit information automatically over a system without necessitating human to computer or human-to-human contact (BESSIS 2013, 48). In other words, these objects have implanted expertise to cooperate with inner state or external surroundings. Seemingly, when objects are in a position to sense as well as correspond, it changes where and how assessments are formulated as well as who creates them. Business Optimization via IoT The Internet of Things has progressed from the unification of wireless technologies, the Internet and (MEMS) micro electromechanical interaction...
11 Pages(2750 words)Research Paper

SEO(search engine optimization)

... Lecturer SEO Tactic Introduction SEO is an acronym which refers to Search Engine Optimizer. In simple terms, it is a technique that is uses the page of a search engine such as Yahoo and Google to increase the number of visitors to a web site. It is a very important technology which helps to ensure that the web site is made accessible to those who are looking for it. Therefore, it is made available in the search engine foe the users to reach it and get the necessary information that they need to get from it. In order to achieve the required success, the web site should have good features which will increase its chances of being accessed by the internet users. SEO Tactics The SEO tactic used in the provided html is White Hat SEO...
2 Pages(500 words)Assignment

ODE Solver and Optimization

...ODE Solver and Optimization s Affiliation Supervisors Introduction The tremors and external forces that makes buildings shake and collapse due to natural forces like earthquakes, have in the recent past resulted in increased loss of human life. These occurrence and damages during earthquakes clearly demonstrates the high seismic hazards and the structures like residential buildings, lifeline structures, historical structures and industrial structures need to be designed very carefully to protect from earthquakes. Structural design approach using seismic response control is now widely accepted and frequently applied in Civil Engineering. Lately engineers have developed new algorithm design capable of reducing these damages due to earthquake...
4 Pages(1000 words)Essay

SEO Search Engine Optimization

... Teacher Search Engine Optimization (SEO) SEO or Search Engine Optimization is defined as “the process of getting traffic from the “free,” “organic,” “editorial” or “natural” search results on search engines” (searchengineland.com 2014). Plainly, it simply meant as “the process of improving the position that your website” (Lines). In general, websites that appear on top of the stack of the search will get more traffic and therefore more potential business (Lines). SEO is also more commonly known as the process where websites are ranked by search engines such Google, Yahoo and Bing. Their ranking in Search Engine Optimization depends on several factors such as relevance, page title and relevance of words used. Other factors include...
2 Pages(500 words)Research Paper

Portfolio Optimization using Linear, Non-linear and Integer Programming and Black-schole Theory

... that will aid in its optimization. Portfolio optimization refers to the selection of various proportions of assets to add to the portfolio in a criterion that promotes them for it to develop further. Portfolio optimization dwells on the improvement of the portfolio and improving the value and level of the stock portfolio to that which proves attractive to the market. The criterion allows for the combination of the various aspects either directly or indirectly. The optimization aspect allows for the analysis of the expected value and the rate of return and their dispersion. The dispersion looks at the distribution of the rate of return to the stock adding value to it and through these measures, the financial risks also undergo analysis...
10 Pages(2500 words)Term Paper

Resistor Manufacture and Optimization

Krishnamurthy argues that there are many types of resistors that are usually employed in electronics. According to him the most common types of resistors are power wire wound resistor, carbon composition resistors, carbon film resistors, metal film resistors and metal oxide resistors. Singmin suggests that current resistors can be manufactured through application of various modern technologies. Current resistors can be manufactured through application of thick-film network. Film-thick network is a way of manufacturing resistors by making use of valuable metal inks, printed screen, and alumina substrates. Resistors can also be manufactured through the employment of thin-film deposition technique. The manufacturing techniques entail...
7 Pages(1750 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Research Paper on topic Portfolio Optimization for FREE!

Contact Us