AN APPLICATION ON BORSA ISTANBUL: OPTIMAL PORTFOLIO SELECTION

Abstract

Portfolio optimization is at the forefront of the topics that are of interest to the investment world from the past to the present. Investors want to get high efficiency from their investments and therefore aim to obtain most suitable optimal portfolios. The methods and rules that need to be followed in order to achieve the optimal portfolio have taken their present form by passing through certain stages. Until the 1950s, portfolio optimization was a traditional approach, which was away from the use of scientific data and based on the random diversification method, argued that it would reduce the risk by only increasing the number of assets. The traditional approach remained valid until the publication of Harry S. Markowitz's "Portfolio Selection" in 1952. This work has laid the foundations of the Mean Variance Model (MVM), which Markowitz developed and still maintains its validity over a long period of time. Utilizing a range of scientific and mathematical data for diversification, the MVM makes it possible to achieve the highest possible return at any risk level, or the lowest level of return desired. MVM tells investors not only what assets they should invest in, but also how much they should invest in those assets. When obtaining the optimal portfolios by MVM; the historical data of the assets and their relation to each other are used.
This study discusses the basic aspects of MVM and shows an application for obtaining optimal portfolios using MVM.