Portfolio Optimization

Analyze and optimize portfolios of assets

Portfolio optimization is a formal mathematical approach to making investment decisions across a collection of financial instruments or assets. The classical approach, known as modern portfolio theory (MPT), involves categorizing the investment universe based on risk (standard deviation) and return, and then choosing the mix of investments that achieve a desired risk versus return tradeoff.

Common steps in optimizing portfolios include:

  • Estimating asset return and total return moments from price or return data
  • Computing portfolio-level statistics
  • Performing constrained mean-variance, conditional value –at-risk, and mean-absolute-deviation optimization
  • Examining the time evolution of efficient portfolio allocations
  • Accounting for turnover and transaction costs

For more information, see MATLAB® and Financial Toolbox.

Examples and How To

Software Reference

See also: Portfolio Optimization and Analysis, Financial Toolbox, Optimization Toolbox, Global Optimization Toolbox, Black-Litterman Model, portfolio optimization videos