The algorithm for generating an optimal investment portfolio


By Prof. Yan Gelrud

Chelyabinsk, Russia


The term investment portfolio means a certain set of securities owned by a natural person or a legal entity which acts as a complete management object. The main problem that must be addressed when forming securities holdings is the task of distributing a certain amount of money on various alternative investments (such as shares, bonds, cash, etc.) by an investor so that their goals are achieved in the best way.

In the first place investor seeks to obtain maximum income by means of: benefit from a favorable shares exchange rate; dividends; receiving solid interest, etc. On the other hand, any capital investment is associated with not only the expectation of income, but also with the constant danger of loss. Therefore, it is essential to take risk into account when solving optimization problems of choice of the securities holdings. The meaning of the portfolio is to improve the investment environment, giving the aggregate of securities such investment characteristics that are unattainable from a position of individual securities and are only possible in their combination.

Income on portfolio investments are gross profit on the entire set of securities included in a particular portfolio taking risk into account. The problem of quantitative correspondence between profit and risk arises and it must be addressed promptly in order to continuously improve the structure of already built and building of new portfolios in accordance with the wishes of investors. Taking into account the investment qualities of securities we can generate a variety of portfolios, each of which will have its own balance between the existing risk acceptable to the owner of the portfolio, and the expected return (income) during a certain period of time. The ratio of these factors allows us to determine the type of portfolio securities.

One of the most effective methods of assessment in the preparation of the investment portfolio is modeling. Modeling allows one to obtain the required investment characteristics of a future portfolio depending on the prevailing market conditions in a short time.


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About the Author

Yakov-GelrudYan D. Gelrudflag-russia

Professor, South Ural State University

Chelyabinsk, Russia

Mr. Yan Gelrud was born in 1947 in Birobidjan (Khabarovsk Territory). In 1965 he finished a school of mathematics and physics at Novosibirsk. In 1970 he graduated from the mathematical faculty of university at Novosibirsk on “Mathematics” speciality. From 1970 to 1991 Yakov was working in the Research Institute of automated control systems as a head of mathematical division. He took part in creation and adoption of more than 100 automated control systems in different branches of industry.

From 1991 to 1997 Mr. Gelrud was doing business, being director general of “URAL-ASCО-SERVICE”. Since the 1st of September 1997 till now he works as a professor of the “Enterprise and management” department in South Ural State University. He teaches a multitude of disciplines, such as “Mathematics”, “Theory of probability and mathematical statistics”, “Econometrics”, “Economic and mathematical methods”, “Mathematical methods of decision-making”, “Bases of decision-making methodology”, “Economical evaluation of investments”, “Mathematical methods and models of project management”, “Studies of managerial systems.”

Yan Gelrud has more than 100 publications and speeches on seminars and conferences of different level. His monograph “Project management in conditions of risk and uncertainty” was published recently. He can be contacted at [email protected]

To view other works by Prof Gelrud, see his author showcase in the PM World Library at http://pmworldlibrary.net/authors/yakov-gelrud/