This chapter demonstrates how market indices can be used to estimate portfolio problem parameters. An evaluation approach is developed for reducing the computing workload in the specification and solution of portfolio optimization problems. The programme uses numerical relationships to transform the traditional portfolio problem into an optimization problem with Capital Market Theory parameters. The addition of the beta coefficient leads in a reduction in computing workload. As a result, asset characteristics are not estimated based on an individual assessment of each asset return. Only by estimating the market index and subsequent evaluations based on asset risk and return relationships can the features be discovered. This reduces the number of evaluations required for the portfolio problem’s covariance matrix. The algorithm is demonstrated using indexes and mutual funds from the Bulgarian Stock Exchange to solve a portfolio problem. The collected results aid in the decision-making process for stock market investments.
Author (S) Details
T. Stoilov
Institute of Information and Communication Technologies – Bulgarian Academy of Sciences, Sofia, Bulgaria.
K. Stoilova
Institute of Information and Communication Technologies – Bulgarian Academy of Sciences, Sofia, Bulgaria.
M. Vladimirov
Varna University of Economics, Varna, Bulgaria.
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