Presents the key functionality offered by the Markowitz Theory and Capital Asset Pricing Model (CAPM) in an easy to use and quickly understandable form.
In particular, we allow the optimal portfolio to be
constructed for a given:
Expected return or Risk: for portfolios which are constructed
from risky assets and possibly cash which can be borred or lent at the
prevailing market rate on cash.
Investors Utility Function: for portfolio which are constructed
from risky assets only.
Remarks: For the rationale as to why in the case of portfolios
which may hold cash there is no rationale for introduction the investors
utility function we refer the interested reader to CapitalMarket.
Two cases corresponding to Markowitz Theory and CAPM
Portfolio Theory roughly speaking considers two cases: one where
we can construct the optimal portfolio from (risky) assets only and
another case where we are able to construct the optimal portfolio
from a combination of (risky) assets with the possibility to either
lend or borrow cash to or from the market at a previaling market rate.
The first case correspondings to the situation treated by Markowitz
Theory adn the second to the situation treated by the Capital Asset
Princign Model.
Five Stateless methods for the Five Cases
For these two cases we offer the following functionality:
Markwotiz Theory: No borrowing or lending Cash
MarkowitzReturn - Finds the weights of
the (risky) assets of the portfolio with the lowest risk for a given
expected return constructed from the available assets.
MarkowitzRisk - Finds the weights of
the (risky) assets of the portfolio with the greatest expected return
for a given risk constructed from the available assets.
MarkowitzUtility - Finds the weights of
the (risky) assets of the portfolio(s) which are selected in accordance
with the investors utility functions constructed from the available assets.
CAPM: Can borrow or lend cash at the prevailing Market rate.
CapmReturn - Finds the weighting of the cash
element and the (risky) assets weightings of the portfolio which has the
lowest risk for a given level of return constructed from the available
assets.
CapmRisk - Finds the weighting of the cash element
and the (risky) asset weightings of the portfolio which has the greatest
expected return for a given value of risk which can be constructed from
the available assets.
Improve Performance and Flexibility
Though this XML Web service is easy to use, it does have the draw-back that
offer the performance and flexibility of the implementation will be less
than clients which can be constructed using the main classes of this
Components.