Markowitz Model Investment Portfolio Optimization: a Review Theory

Nurfadhlina Abdul Hali; Ari Yuliati

doi:10.46336/ijrcs.v1i3.104

Markowitz Model Investment Portfolio Optimization: a Review Theory

Nurfadhlina Abdul Hali, Ari Yuliati

Abstract

In the face of investment risk, investors generally diversify and form an investment portfolio consisting of several assets. The problem is the fiery proportion of funds that must be allocated to each asset in the formation of investment portfolios. This paper aims to study the optimization of the Markowitz investment portfolio. In this study, the Markowitz model discussed is that which considers risk tolerance. Optimization is done by using the Lagrangean Multiplier method. From the study, an equation is obtained to determine the proportion (weight) of fund allocation for each asset in the formation of investment portfolios. So by using these equations, the determination of investment portfolio weights can be determined by capital.

Keywords

Investment risk, diversification, portfolio, the weight of fund allocation, optimization, Lagrange multiplier

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DOI: https://doi.org/10.46336/ijrcs.v1i3.104