PORTFOLIO MANAGEMENT: MEAN-VARIANCE ANALYSIS IN THE US ASSET MARKET
Journal Title: European Journal of Business and Social Sciences - Year 2014, Vol 3, Issue 4
Abstract
In practice an investor would like to have the highest return possible. However, assets with high return usually correlate with high risk. The expected return and risk measured by the variance are the two main characteristics’ of a portfolio. Mean-variance model as a good optimizer can exploit the correlation, the expected return, and the risk and user constraints to obtain an optimized portfolio. Although it is the simplest model of investments, is sufficiently rich to be directly useful in applied problems and decision theory. In the paper two methods are presented that exemplify the flexibility of its application: maximizing the return and minimizing the risk. Based on the numerical solution it can easily be understood that, for an investor, specifying a target return may be more intuitive than struggling with risk aversion coefficientï¬. The problems are formulated by using the Wolfram Mathematical Programming System.
Authors and Affiliations
Narela Spaseski| Department of Economics, International University of Sarajevo, Hrasnicka Cesta 15, Ilidza, 71200 Sarajevo BiH, narela7@yahoo.com
Keywords
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