How do you find the optimal weights of a portfolio in excel using solver given a...

How do you find the optimal weights of a portfolio in excel using solver given a predefined risk (target standard deviation)?

Solutions

Expert Solution

Step 1

Firstly calculate the expected return of the portfolio

Snap for reference with dummy data attached

- To start, the weights for all the assets in the portfolio is kept the same, 20%

Excel function used: MMULT - Matrix Multiplier - Returns the matrix product of 2 arrays.

I10:I14 is the column containing the weights of the assets and B2:B6 is the expected return for each of the asset.

Step 2

Calculate the standard deviation

Step 3

Calculate the Shape Ratio - (Expected Rate - Risk Free Rate/12)/stdev

Assuming Rf = 1.5%

Step 4

Select the solver

Select Sharpe Ratio as the objective function

Select Portfolio Weights as the inputs

Condition - Sum of the portfolio weights should be equal to 1.

Run

jeff jeffy answered 1 month ago

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