Worcester Polytechnic Institute Electronic Theses and Dissertations Collection

Title page for ETD etd-042312-150048

Document Typemasters report
Author NameXu, Chenghao
Email Address eric8857 at hotmail.com
TitlePortfolio Optimization, CAPM & Factor Modeling Project Report
DepartmentMathematical Sciences
  • Blais, Marcel Y., Advisor
  • Vernescu, Bogdan M., Department Head
  • Keywords
  • Modern Portfolio Theory
  • Factor Model
  • CAPM
  • French and Fama Model
  • Date of Presentation/Defense2012-04-30
    Availability unrestricted


    In this Portfolio Optimization Project, we used Markowitz¡¯s modern portfolio theory for portfolio optimization. We selected fifteen stocks traded on the New York Stock Exchange and gathered these stocks¡¯ historical data from Yahoo Finance [1]. Then we used Markowitz¡¯s theory to analyze this data in order to obtain the optimal weights of our initial portfolio. To maintain our investment in a current tangency portfolio, we recalculated the optimal weights and rebalanced the positions every week.

    In the CAPM project, we used the security characteristic line to calculate the stocks¡¯ daily returns. We also computed the risk of each asset, portfolio beta, and portfolio epsilons.

    In the Factor Modeling project, we computed estimates of each asset¡¯s expected returns and return variances of fifteen stocks for each of our factor models. Also we computed estimates of the covariances among our asset returns. In order to find which model performs best, we compared each portfolio¡¯s actual return with its corresponding estimated portfolio return.

  • CXu.pdf

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