Subject: Portfolio Management
Author: WebSpider
Posted on: 05/03/2019 12:39:58 AM

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The ultimate goal of any trading algorithm is to hold the “best” possible portfolio at each point in time. Algorithms vary in their definition of “best”, the most popular one is to maximizes returns while maintaining a specific structure defined by a set of rules or constraints. This is usually referred to as a portfolio optimization problem.

Mathematically, the portfolio optimization problem can be expressed as:

Given an objective function, F(w), and a list of inequality constraints, Ci ≤ hi, find a vector {w} of portfolio weights that maximizes F while satisfying each of the constraints.

By solving this portfolio optimization problem, Harry Markowitz won the 1990 Nobel Prize in Economic Sciences.

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