Summary

This chapter covered portfolio optimization. After presenting the main idea, we introduced the Markowitz model and its mathematical formulation. We discussed the methods for possible solutions and implemented a simple algorithm to demonstrate how these methods work on real data. We have also used pre-written R packages to solve the same problem. We broadly discussed other important subjects like the market portfolio, the uncertainty in the estimation of the covariance matrix, and the risk measures beyond variance. We hope that this was a useful first run on the topic and you are encouraged to study it further or check out the next chapter, which is about a related subject—asset pricing models.