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You're reading from  Python for Finance Cookbook

Product typeBook
Published inJan 2020
Reading LevelIntermediate
PublisherPackt
ISBN-139781789618518
Edition1st Edition
Languages
Python
Tools
Scikit-learnKeras
Concepts
Financial Technology
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Author (1)
Eryk Lewinson
Eryk Lewinson
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Eryk Lewinson

Eryk Lewinson received his master's degree in Quantitative Finance from Erasmus University Rotterdam. In his professional career, he has gained experience in the practical application of data science methods while working in risk management and data science departments of two "big 4" companies, a Dutch neo-broker and most recently the Netherlands' largest online retailer. Outside of work, he has written over a hundred articles about topics related to data science, which have been viewed more than 3 million times. In his free time, he enjoys playing video games, reading books, and traveling with his girlfriend.
Read more about Eryk Lewinson

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Finding the Efficient Frontier using Monte Carlo simulations

According to the Modern Portfolio Theory, the Efficient Frontier is a set of optimal portfolios in the risk-return spectrum. This means that the portfolios on the frontier:

  • Offer the highest expected return for a given level of risk
  • Offer the lowest level of risk for a given level of expected returns

All portfolios located under the Efficient Frontier curve are considered sub-optimal, so it is always better to choose the ones on the frontier instead.

In this recipe, we show how to find the Efficient Frontier using Monte Carlo simulations. We build thousands of portfolios, using randomly assigned weights, and visualize the results. To do so, we use the returns of four US tech companies from 2018.

How to do it...

...
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Python for Finance Cookbook
Published in: Jan 2020Publisher: PacktISBN-13: 9781789618518
© 2020 Packt Publishing Limited All Rights Reserved

Author (1)

author image
Eryk Lewinson

Eryk Lewinson received his master's degree in Quantitative Finance from Erasmus University Rotterdam. In his professional career, he has gained experience in the practical application of data science methods while working in risk management and data science departments of two "big 4" companies, a Dutch neo-broker and most recently the Netherlands' largest online retailer. Outside of work, he has written over a hundred articles about topics related to data science, which have been viewed more than 3 million times. In his free time, he enjoys playing video games, reading books, and traveling with his girlfriend.
Read more about Eryk Lewinson

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