Iim Indore Research Paper

simulation model throws results on numerous portfolios

based on different weight profiles on the efficient frontier curve. This research

paper is based on selecting the portfolio with minimum risk. The data set used

for the research work is that of National Stock Exchange’s Nifty 50 constituents

for past eleven years i.e. from Jan-2000 to Dec-2011. The theory used behind

weight assignment is based on the Markowitz model of mean variance

optimization. The software used is Microsoft Excel with Solver & VBA for

simulation modeling.

Assumptions of Markowitz model

• Investors are interested in the optimization problem described above

(maximizing the mean for a given variance)

• Asset returns are (jointly) normally distributed random variables

• Correlations between assets are fixed and constant forever

• All investors aim to maximize economic utility (in other words, to make

as much money as possible, regardless of any other considerations).

• All investors are rational and risk-averse

• All investors have access to the same information at the same time

• Investors have an accurate conception of possible returns, i.e., the

probability beliefs of investors match the true distribution of returns

• There are no taxes or transaction costs.

• All investors are price takers, i.e., their actions do not influence prices.

• Any investor can lend and borrow an unlimited amount at the risk free rate

of interest

• All