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

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

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  • Cheng Few Lee

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.

Suggested Citation

  • Cheng Few Lee, 2020. "Single-Index Model, Multiple-Index Model, and Portfolio Selection," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 81, pages 2757-2799, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0081
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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