Faculty Advisor

Blais, Marcel

Faculty Advisor

Vernescu, Bogdan

Abstract

This project has three parts. The first part is to use the efficient frontier and find the tangency portfolio to form our optimal portfolio. We built our portfolio using the Interactive Brokers software and rebalanced every week for 4 holding periods to see the relationship between our projected returns and actual market returns. In the second part we considered the Capital Asset Pricing Model (CAPM) and ran linear regressions on the stocks we chose in the first part of the project. This process is based on our idea of finding the systematic risk in each stock to improve our stock choosing ability. In the last part we introduce the concept of factor models and add more factors into our original CAPM model. Via a back-testing method, we test the reasonability of our factors and give advice to further improve our portfolio optimization project.

Publisher

Worcester Polytechnic Institute

Degree Name

MS

Department

Mathematical Sciences

Project Type

Thesis

Date Accepted

2012-04-25

Accessibility

Unrestricted

Subjects

optimal portfolio, factor model, CAPM

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