FactorPad
Tutorials for Faster Learning

FINANCE

Glossary Quant 101

TECHNOLOGY

Linux Data Science

~/ home  / finance  / glossary  / optimization

Optimization definition

An iterative process of reviewing inputs and constraints such as turnover, industry bounds and risk exposures to achieve the desired portfolio weights.

Intermediate

Optimization is the process of selecting portfolio weights to assets based on the maximization of a ratio or return over risk. This is often called MVO for Mean/Variance Optimization which is a key component of Modern Portfoio Theory. In that equation, Mean stands for the forecast return and Variance stands for the forecast variance for the ending portfolio. This optimization incorprates two measure of risk: variance and covariance. The calculatino takes into consideration the benefits of diversification as represented in a covariance matrix.

Synonyms: portfolio optimization, MVO optimization, optimisation


Other Original Content

Quiz

Click box for answer.

Optimization in Excel can be done, but it requires the Data Analysis ToolPak. | True or False?

False. It requires the Solver Add-In.

In a Sentence

Kim:  At my job I do SEO. Search Engine Optimization. What do you do again?
Guy:  I do MVO. It's portfolio optimization. I've heard SEO is more difficult.

Video

Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.

Videos can also be accessed from the YouTube Channel.

Video Script

If this term had a video, the script would be here.

Related Terms

Our trained humans found other terms in the category portfolio management you may find helpful.


Learn More About The Glossary

For links to all glossary terms and videos click the Outline button below.


What's Next?

There's a lot to explore on our YouTube Channel. Subscribe here.

Next up is a discussion and video on creating a  Pitch Book . Click Next.

Outline Back Next

~/ home  / finance  / glossary  / optimization



 
 
Keywords:
optimization
portfolio optimization
MVO optimization
optimal portfolio
portfolio theory
efficient frontier
Sharpe Ratio
risk aversion
risk tolerance
portfolio management