Applied Optimization Methods for Financial Economics

Catalog description

This course surveys quantitative approaches to modeling asset returns and constructing optimal portfolios. Multifactor models provide the foundation for modeling asset returns and generating forecasts of the first and second moments of asset returns. These forecasts subsequently serve as inputs for portfolio optimizers—including mean-variance and active approaches—to generate portfolio weights. Important practical problems relating to portfolio constraints, transaction costs, and rebalancing are examined, as well as tools for rigorously analyzing portfolio performance. Recently popular risk-based and market neutral portfolios are also analyzed. Students develop skills for asset return modeling, portfolio optimization, and performance measurement via extensive hands-on exercises using MATLAB, a powerful program for numerical computation and visualization. The key learning objective is for students to develop the technical and judgmental skills required to construct portfolios that are tailored to investor goals and risk tolerance.