Portfolio Optimization with or Without Safe Asset

Yongyu Liu ()
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Yongyu Liu: New York University, College of Arts and Science

A chapter in Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022), 2022, pp 425-432 from Springer

Abstract: Abstract Portfolio optimization is one of the most common and essential technique in measuring the plausibility of the designated combinations of the assets. Optimal Portfolio are well diversified to decrease the non-price risk and the unsystematic risk of the assets, which maximizes the returns of the stocks and protects the investors from the underperformances of certain assets. This paper engages in portfolio optimization through the asset allocation for different types of equities: Exchange-traded funds (ETF), mutual funds and stocks. First, there are five assets chosen from the market and their closed price are elicited as their daily returns. Second, using Fama–French 3 factor model (FF3F), the researchers can calculate the expected returns and possible risks of the portfolio. Third, they then utilize the built-in Solver function in Excel to generate a maximum value for the Sharpe ratio by putting various weights on different assets in that portfolio.

Keywords: Portfolio Optimization; Fama–French 3 factor model (FF3F); Capital Asset Pricing Model (CAPM) (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-052-7_49

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DOI: 10.2991/978-94-6463-052-7_49

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