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Portfolio Optimization for Heavy Tailed Assets
by Using Markowitz Model
Wong Ghee Ching
Supervisor: Dr. Che Mohd Imran Bin Che Taib
Bachelor of Science (Financial Mathematics)
School of Informatics and Applied Mathematics
The theory of portfolio optimization together with Capital Asset Pricing Theory (CAPM)
provides the building blocks in portfolio management. This study poses what is the exact
return distribution, diversification ratio of portfolio, and portfolio’s performance
benchmarked against a relevant market. Therefore, a study is conducted to investigate
the statements to maximize expected returns correspondent with individually acceptable
levels of risk by using Markowitz model. Using historical data from 2007 to 2016, a
backtesting study of the portfolio optimization is performed to find an optimal portfolio.
CAPM is used to measure the portfolios’ performance by associating its comparison with
a relevant market driven benchmarked. Thus, the portfolio shows an optimal weight
structure for investments. The evaluation result indicated that the minimum variance
portfolio optimization may substantially improve the investment performance.
Consequently, this model could help investors and financial institutions to construct an
optimal portfolio with multiple assets by diversifying asset allocation.
904 | UMT UNDERGRADUATE RESEARCH DAY 2018