Portfolio optimization model background
Objective: We have used the Modern Portfolio Theory (MPT) to maximize the Sharpe Ratio so that our portfolio lies on the efficient frontier.
Asset class: Our model supports dynamic portfolio types. We have included both equity indexes ( a broader asset class which is widely used by Robo-advisory platforms) and equity stocks. Our model is capable of supporting a global portfolio. As of now, we have considered the Indian and US market, but we can easily include other countries too.
Risk profiling engine and asset class constraints: We have conducted in-depth research to develop a risk profiling engine using both quantitative and psychological parameters. For each risk class, we will define a min-max range of different asset classes. Our model is advanced enough to meet both the objectives – maximizing investors’ return as well as qualifying the asses class criteria.
Calculation Period: At present, we have kept the flexibility to decide the data time-frame for calculation. In general, the past five years of data is used, but we have kept the flexibility to deal with abnormal situations.
Model Prototype In Action
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