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Optimization definition

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


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

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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.


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~/ home  / finance  / glossary  / optimization

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