Author(s)

Bonian Hu, Jiangyi Li

Corresponding Author

Bonian Hu

ABSTRACT

In this report, we choose the data of twenty years the historical closing price of ten stocks, and the SPX index to illustrate the comparison between the results of the Markowitz Model and the Index Model by finding optimization inputs for different models. When the models are used, five different combination weights are displayed by adding five different constraints of the real-world situations. Two perspectives of view, minimizing risk and maximizing sharp ratio, tend to determine the stock weight of optimal portfolio applying for both models, respectively. Then generate a comparison based on the SPX index and ten stocks’ historical prices in the past twenty years. The Index Model performs better as it has a better sharp ratio and higher return, and two constraints perform exactly the same while one constraint has a very difficult result compared to other constraints.

KEYWORDS

Markowitz Model, Index Model, comparison, constraints, optimal portfolio