Financial Modeling Applications
Markowitz Optimization with Transaction Costs
This Mathcad worksheets optimizes the mix of risky assets (from a supplied set of returns for four stocks) through the classic Markowitz model. It essentially minimizes the portfolio variance while maintaining your desired return. It also allows the uses to include the effect of transaction costs on changes to an existing portfolio to minimize variance. A Mathcad 11 worksheet (and PDF conversion) can be downloaded.
Efficient Frontier of Risky Assets
This Mathcad 11 worksheet plots the Efficient Frontier for a set of risky assets with user-specified returns. A PDF conversion can also be downloaded.
Sharpe Ratio and Sortino Ratio
Hedge funds traditionally use benchmarks like the Sharpe Ratio and Sortino Ratio to gauge the risk-efficiency of portfolios. The Sharpe Ratio is the effective return of a risky asset per unit of risk (i.e variance), while the Sortino Ratio is the effect return of a risky asset per unit of downside risk. The higher the numerical value of both these ratio, the more risk efficient a portfolio is said to be. This Mathcad 11 worksheet (and PDF conversion) optimizes the allocation of a portfolio of risky assets by maximizing the Sharpe Ratio and Sortino Ratio.
Fitting the FTSE All Share to a Log-Normal Distribution
This Mathcad 11 worksheet fits the year-on-year returns of the FTSE All Share to a log-normal probability distribution through a maximum likelood approach. It analyzes the data from 1800 to 2007. A PDF is also available.
Value at Risk of Infosys Shares
This worksheet calculates the ten-day Value At Risk of Infosys shares from 1993 to 1999. Again, a PDF is also available.
I wrote these worksheets while studying financial maths to optimize my own investment portfolio.