Creating Optimal Portfolio and the Efficient Frontier Using Microsoft Excel®
Journal: Journal of Quantitative Methods (Vol.2, No. 2)Publication Date: 2018-08-31
Authors : Saurav Roychoudhury;
Page : 103-136
Keywords : Optimal Portfolio; Efficient Frontier; Risk; Expected Return; Risk-free asset;
Abstract
Portfolio managers and investors strive to achieve the best possible trade-off between risk and return, and one of the tools they use is constructing mean-variance efficient portfolios. Finance students learn about optimal portfolios and efficient frontiers, though it is difficult to replicate them unless they have access to sophisticated software. This paper develops a teaching module that uses Microsoft Excel® to create mean-variance portfolios and traces out the efficient frontier using real-world data. In the process, the students learn to determine optimal investment allocations in a portfolio, select the optimum investment portfolio given investor's objectives and preferences and learn about factors that influence different asset allocations. For multiple assets (N>3), the paper uses Matrix algebra in Excel®. The paper enables students and investors to learn how to construct real-world mean-variance efficient portfolios using Excel®.
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Last modified: 2019-05-30 15:29:45