Title

Portfolio Optimization Using the Quadratic Optimization System and Publicly Available Information on the WWW

SMC Author

Jivendra Kale

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Finance

Document Type

Article

Publication Date

2009

Publication Title

Managerial Finance

Publisher/Venue

Emerald Group Publishing Limited

Description/Abstract

Purpose
– The purpose of this paper is to describe some optimization exercises which have proved to be very useful for introducing students to Markowitz‐style mean‐varience optimization.
Design/methodology/approach
– This paper describes two exercises that walk students through the process of gathering security price and dividend data, estimating the parameters of the joint distribution of asset returns, and then using a portfolio optimizer to construct mean‐variance efficient portfolios. It describes the basic methodology, and the more complex formulations of the portfolio optimization problem that are used in practice.
Practical implications
– Portfolio selection is typically taught in finance courses as an abstract solution to a system of equations, and does little to connect the portfolio construction process to Exchange Traded Funds, stocks, bonds and other assets that are traded in markets. This study offers a practical approach to teaching portfolio optimization, that starts with gathering market data and shows how a quadratic optimization system is used to construct mean‐variance optimal portfolios.
Originality/value
– The exercises in this case study prepare students to construct mean‐variance efficient portfolios for asset allocation with Exchange Traded Funds, and for building stock and bond portfolios, using market data and a portfolio optimizer.

Keywords

Portfolio investment, Variance, Assets management, Money markets

Scholarly

yes

DOI

10.1108/03074350910949808

Volume

35

Issue

5

First Page

439

Last Page

450

Disciplines

Business | Economics | Finance and Financial Management

Original Citation

Kale, J. (2009). Portfolio Optimization Using the Quadratic Optimization System and Publicly Available Information on the WWW. Managerial Finance

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