Comparative Risk Management in Portfolio Optimization: Evaluating the Markowitz and Index Models Across Constrained and Unconstrained Scenarios

Sihan Xu ()
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Sihan Xu: New York University

A chapter in Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), 2025, pp 163-172 from Springer

Abstract: Abstract The effectiveness of the two models in aligning portfolio risk and managing returns for unconstrained investments and constrained ones is analyzed in the article. In relation to both systematic and idiosyncratic risks the MM has an advantage in this respect, favorable under unrestricted conditions. By contrast, in scenarios where a portfolio is constrained such that short-selling is prohibited or margins are restricted--IM can still be considered an alternative. To be consistent with only systematic risk, rather than a less Blessed approach to threats achieved through other systems under similar constraints: It can even more properly plan how to avoid danger and make up its ideas about hedging against pressure such as inflation. Such reliance on systematic risk can be mitigated by IM. As examples, the restrictive gage of markets provides a fertile field for hedging techniques under IM. Altering the mode in which management and risk control are conceived at figurations of a particular portfolio is necessary, including stressing compatible adoption between MM and IM across different conditions. It provides a comprehensive view of risk return characteristics influenced by two portfolio optimization techniques, and serves as the starting point for producing better, intelligence and efficient portfolio management strategies through comparisons of these two models.

Keywords: Portfolio Management; Investment; Finance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-748-9_19

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DOI: 10.2991/978-94-6463-748-9_19

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