Financial Portfolio Optimization Methods
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= Models of Optimization = | = Models of Optimization = | ||
| − | == | + | ==Background== |
| − | The term efficient portfolios was developed in the | + | The term efficient portfolios was developed in the 1950's by Harry Markowitz <ref>Markowitz, H. (1952). Portfolio selection*. The journal of finance, 7(1), 77-91.</ref>, <ref>Markowitz, H. M. (1968). Portfolio selection: efficient diversification of investments (Vol. 16)<\ref>. Yale university press.. An efficient portfolio is one that at given level of risk provides the greatest return and at given performance holds the less amount of risk. According to this definition, an investor will choose from a set of possible portfolios, the portfolio which: |
# offers the maximum expected return for different levels of risk | # offers the maximum expected return for different levels of risk | ||
# offers the lowest risk for different levels of expected return. | # offers the lowest risk for different levels of expected return. | ||
Revision as of 21:12, 11 September 2015
Quantification of Financial Risk TO BE EDITED,ADD BIBLIOGRAPHY AND FIGURES
In today's globalized market, financial risk and treatment of it that has gained great importance, especially after the Financial crisis of 2008, where factors which may affect the fragile global economy proved to be thousands and often unconnected to each other. Nations fail to pay their debts and giants of the finance industry bailed out [1]. These financial institutions have developed various quantitative methods which can give a prediction of this risk level in financial portfolios. A financial portfolio is considered the summary of investments owned by an investor ( company or individual )[2]. The first step for the quantitative measurement of risk in portfolios was made by Harry Markowitz in 1952 [3], with the development of the mean-variance model as risk measurement, which shows interest until today(μιν βαριανσημερα) and it is used by investors. Thereafter, various other methods were developed, focusing on alternative risk measures that could lead to linearization of the portfolio optimization problem [4] .
Models of Optimization
Background
The term efficient portfolios was developed in the 1950's by Harry Markowitz [5], [6]
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