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Minimum Variance Optimization with Solver V1.1- AMM

by Alexander Horn, 1982 days ago
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Mean-variance optimization (the implementation of Markowitz's modern portfolio theory) basically allows one to find the optimal weights of assets in a portfolio that maximizes expected return given a level of risk/variance, or equivalently, minimize risk/variance given a level of expected return. The biggest ingredient in mean-variance optimization is the covariance matrix of the asset returns. The covariance matrix contains information on not only how volatile the assets are (their variance) but also how they move with each other (covariance). Covariance adds a piece to the adaptive asset allocation puzzle that we did not have before: how the asset classes move with each other, how correlated they are, if they are good hedges for each other.

The minimum variance portfolio is the set of asset class weights that minimizes the variance of the portfolio (regardless of our expectations of future returns).

This AMM script runs a minimum variance optimization of the portfolio holdings, using the Microsoft Solver foundation. Prior to the first run it requires some configuration in quantshare and the solver dll reference in the script...

This trading system is to show the functionality and to serve as base for further development. As such it is only a test version, still not stable and with bugs.
Instructions for solver and configuration have been posted into the shared drive of the group.

Thanks to Clonexx / QS for the source code.

V1.1:
- Changed symbols to 7 mutual funds available in yahoo
- Added further descriptions to AMM code for easier reference and changes


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Type: Trading System

Object ID: 1454


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Market: Stock Market

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