finding optimal portfolioin excel solver function

However, the model can be applied to any set of mutual fund options to create an optimal fund allocation. This article uses TIAACREF mutual fund data as an example to illustrate the MPT concept as a practical approach to optimizing an investment portfolio to obtain maximum return with minimal risk.

This process provides an excellent example of how the Excel Solver can be used to solve a mathematical optimization problem, which is especially beneficial to investors as they face the challenge of determining how to efficiently optimize their mutual fund portfolios. Tions to this rule-based system, in conjunction with Sharpe's methodology and the Sharpe Ratio, can be simply implemented using the Microsoft Excel Solver function. The singleindex model allows for the computation of betas, expected returns, and residual variances with a market index return and variance. Due to the complexities of calculating the variance-covariance matrix and the computer memory resources required to solve this quadratic objective function, Sharpe devised a single-index model that nicely replicates the Markowitz function. One solution to overcoming such investor constraints is to provide a rule-based hierarchal system as a primer to establishing an equivalent linear form of the Markowitz quadratic objective function which, when optimized, affords an optimal solution for an investment portfolio. This is especially true in determining the standard deviation of a portfolio using the Markowitz methodology The investor's knowledge of the theoretical basis of MPT presents a conceptual constraint on his/her ability to understand the underlying constructs of MPT, which is required to determine the asset investment strategy that will optimize the portfoho. While MPT provides excellent insights into which assets should be included in an investor's optimal portfolio, understanding the underlying statistical techniques in portfolio optimization presents a rigorous challenge.

Odern Portfolio Theory (MPT) is based on the idea that combinations of assets have the potential to provide better returns with less risk than individual assets. Is an associate professor at Beacom School of Business, University of South Dakota in Verniillion, SD. JEFF GROVER is an associate professor at Indiana Wesleyan University in Marion, IN.

IModern Portfolio Optimization: A Practical Approach Using an Excel Solver Single-Index Model

Finding optimal portfolioin excel solver function