Portfolio Optimization under Mean-Variance Framework

Abstract

The Mean-Variance Framework, a basic theory mainly involved in portfolio optimization, is the most important analysis method in the investment according to the risk attitudes. It’s cornerstone in the modern portfolio theory which helps investors to analyze and adjust portfolio structure. By using Markowitz model and Black’s model, the results of these methods and strategies are analyzed and we find which the best choice is for investors. Dow Jones Industrial Average is one of the most important indices for measuring stocks in the world, and we selected the companies from top 30 companies from DJIA as the objective of analysis. It is linked to optimal weights of assets in portfolio which bring investors better wealth with minimum risk. So in this thesis we will describe the mean-variance framework in Markowitz and Black’s model and optimize the weights of portfolios. We will use more than one method to analyze portfolio performance and to seek for optimal portfolio of investments.