Efficient Portfolio/Portfolio Optimisation Model Requirements
First Stage. Students have to choose 10-15 investments (stocks, bonds, ETFs, any types of funds) and collect 5-10 years of monthly or preferably weekly price information. After calculating expected returns and an appropriate variance-covariance matrix, find envelope portfolios and calculate minimum variance and the market portfolios.
Second stage. Make adjustments to portfolio weights, short-sale restrictions if necessary to make the portfolio as realistic as possible.
Financial model built by students should be:
- Original: each student should pick different assets for their portfolios;
- Comprehensive and Realistic: each model should consider all the issues discussed in class.
- Flexible: should be possible to apply for a slightly different task, i.e. different inputs.
- Well Organised and Easy to Follow: separate area for inputs and outputs (possibly color-coded).
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