Single-Index Model, Multiple-Index Model, and Portfolio Selection

Cheng Few Lee

Chapter 81 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 2757-2799 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter offers some simplifying assumptions that reduce the overall number of calculations of Markowitz models through the use of the Sharpe single-index and multiple-index models. Besides single-index model, we also discuss how multiple-index model can be applied to portfolio selection. We have theoretically demonstrated how single-index and multiple-index portfolio selection models can be used to replace Markowitz portfolio selection model. An Excel example of how to apply the single-index model approach is also demonstrated.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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