Document Type masters report Author Name Dong, Yijun URN etd-042312-151544 Title Portfolio Optimization, CAPM & Factor Modeling Project Report Degree MS Department Mathematical Sciences Advisors Marcel Blais, Advisor Bogdan Vernescu, Department Head Keywords CAPM French and Fama Model Modern Portfolio Theory Factor Model Date of Presentation/Defense 2012-04-23 Availability restricted
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 . 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.
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