Creating Optimal Portfolio and the Efficient Frontier Using Microsoft Excel®

Saurav Roychoudhury ()
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Saurav Roychoudhury: Department of Business, Capital University, Columbus, OH, USA 43209.

Journal of Quantitative Methods, 2018, vol. 2, issue 2, 104-136

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®.

Keywords: Optimal Portfolio; Efficient Frontier; Risk; Expected Return; Risk-free asset (search for similar items in EconPapers)
JEL-codes: B26 (search for similar items in EconPapers)
Date: 2018
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