Open AccessLinear Algebra on investment portfolio optimization model
Author(s) -
B Basuki,
S Sukono,
Deddy Sofyan,
Sukanto Sukandar Madio,
Nitta Puspitasari
Publication year - 2019
Publication title -
journal of physics. conference series
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.21
H-Index - 85
eISSN - 1742-6596
pISSN - 1742-6588
DOI - 10.1088/1742-6596/1402/7/077089
Subject(s) - portfolio optimization , portfolio , modern portfolio theory , replicating portfolio , mathematics , covariance matrix , post modern portfolio theory , stock (firearms) , black–litterman model , mathematical optimization , separation property , econometrics , covariance , financial economics , economics , statistics , engineering , mechanical engineering
In this paper we discuss the issue of linear algebra on the investment portfolio optimization models. It was assumed that stock returns are analyzed have a certain distribution, so that the mean and variance and covariance between the separation can be determined. Return of some stock used to form a vector averaging, and the number of shares used as the basis to form a unit vector. While the variance of each stock as well as the covariance between stocks, is used to form a covariance matrix. The investment portfolio was formed consisting of several stocks, in order to maximize the expected return and minimize risk. The portfolio optimization was performed using linear algebra approach. The result is a formula used to determine the optimum composition of the portfolio weights. The resulting formula is very useful for the analysis of the investment portfolio optimization.