MeanVariance Optimization
Asset allocation is a multiple objective problem: sophisticated
investors seek to maximize return while minimizing risk. Given
the complex interactions among the assets under consideration,
how can an investor select the portfolio that achieves their goals?
One answer is MeanVariance Optimization, a mathematical
technique pioneered by Harry Markowitz in the 1950's. Since its
introduction, MeanVariance Optimization, or MVO, has been one
of the most successful applications of mathematics in finance.
While the technique has been widely used in major investment
institutions, the power of MVO has only recently been of interest
to individual investors and financial services professionals due in
large part to the growth in market access afforded by the internet.
Diversification is the key concept. This is the process of selecting
assets that complement one another in order to mitigate risk. MVO
accomplishes this by characterizing each asset by its expected
return and volatility (i.e., standard deviation in asset return). The
interaction between two assets is characterized by the correlation
between their respective returns. Under these assumptions, a
mathematically optimal answer to the asset allocation problem can
be generated.
Wagner's
MV Optimizer
product for personal or larger scale portfolio
optimization problems brought the power of MVO to hundreds of homes and businesses. This entrylevel product is no longer available for purchase, as its maintenance costs now exceed projected sales.
If you need to embed extensive portfolio optimization
capability into your own software application or website, then you
should consider our industrial strength
MVO Library
product. For more information on any of our meanvariance optimization products,
please contact MVOSupport@pa.wagner.com.
Wagner Math Finance has been providing MeanVariance
Optimization solutions for close to a decade, serving a broad
spectrum of clients with products ranging from Excel based
spreadsheet solutions for individual investors to industrial strength
software libraries for some of the world's largest money managers.
Our products are robust, tested over many years, and can handle
large problems with thousands of assets and constraints. In
addition, we have the expertise on hand to customize these
solutions to meet our clients evolving needs.
