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Markowitz Mean-Variance Optimization

In: Analyzing Financial Data and Implementing Financial Models Using R

Author

Listed:
  • Clifford S. Ang

    (Compass Lexecon)

Abstract

This chapter discusses mean-variance optimization based on the work of Markowitz. The idea is for us to find portfolios that provide the highest expected return for a given level of risk. We demonstrate the intuition of identifying mean-variance efficient portfolios and construction of the mean-variance efficient frontier through a simple two-asset example. We then show how to use quadratic programming to extend the two-asset portfolio to a multi-asset portfolio.

Suggested Citation

  • Clifford S. Ang, 2015. "Markowitz Mean-Variance Optimization," Springer Texts in Business and Economics, in: Analyzing Financial Data and Implementing Financial Models Using R, edition 127, chapter 7, pages 209-240, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-14075-9_7
    DOI: 10.1007/978-3-319-14075-9_7
    as

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