Constrained Quadratic Optimisation: 6.
Portfolio optimisation
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6. Portfolio
optimisation
In a (mean-variance) portfolio optimisation context, the
objective that we typically want to maximise is the following (or some
monotonic equivalent):
Here are the
portfolio weights (so typically we impose at least the following constraint ), is
the benchmark (or ‘minimum risk’ portfolio), is
a vector of assumed returns on each asset and is
the covariance matrix (, where is
the vector of risks on each asset class, here assumed to be characterised by their
volatilities, as this approach is merely a mean-variance one, and their
correlation matrix).
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