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Portfolio Optimization Methods: The Mean-Variance Approach And The Bayesian Approach, Hoang Nguyen

Honors Theses

This thesis is a discussion on the mean-variance approach to portfolio optimization and an introduction of the Bayesian approach, which is designed to solve certain limitations of the classical mean-variance analysis. The primary goal of portfolio optimization is to achieve the maximum return from investment given a certain level of risk. The mean-variance approach, introduced by Harry Markowitz, sought to solve this optimization problem by analyzing the means and variances of a certain collection of stocks. However, due to its simplicity, the mean-variance approach is subject to various limitations. In this paper, we seek to solve some of these limitations …