A Simplified Model for Portfolio Analysis

This paper describes the advantages of using a particular model of the relationships among securities for practical applications of the Markowitz portfolio analysis technique. A computer program has been developed to take full advantage of the model: 2,000 securities can be analyzed at an extremely...

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Bibliographic Details
Published inManagement science Vol. 9; no. 2; pp. 277 - 293
Main Author Sharpe, William F
Format Journal Article
LanguageEnglish
Published Linthicum INFORMS 01.01.1963
Institute of Management Sciences
Institute for Operations Research and the Management Sciences
SeriesManagement Science
Subjects
Analytical estimating
Computer analysis
Computers
Cost analysis
Expected returns
Expected values
Financial portfolios
Modeling
Parametric models
Security portfolios
Statistical variance
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Summary:This paper describes the advantages of using a particular model of the relationships among securities for practical applications of the Markowitz portfolio analysis technique. A computer program has been developed to take full advantage of the model: 2,000 securities can be analyzed at an extremely low cost-as little as 2% of that associated with standard quadratic programming codes. Moreover, preliminary evidence suggests that the relatively few parameters used by the model can lead to very nearly the same results obtained with much larger sets of relationships among securities. The possibility of low-cost analysis, coupled with a likelihood that a relatively small amount of information need be sacrificed make the model an attractive candidate for initial practical applications of the Markowitz technique.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.9.2.277