An Algorithm for Finding a Portfolio with the Highest Sharpe Ratio

9 Pages Posted: 8 May 2011

Date Written: January 19, 2011

Abstract

An optimal portfolio with the highest possible Sharpe ratio plays an important role for capital allocation and performance evaluation. This paper introduces a simple algorithm for finding the Sharpe-optimal portfolio without solving a non-linear problem. The results are tested on S&P 100 components in year 2010. They also address the issue of using arithmetic means or actual returns as the optimization inputs.

Keywords: Portfolio optimization, Sharpe ratio, mean-variance optimization, capital allocation line

JEL Classification: G11, C6

Suggested Citation

Khokhlov, Valentyn, An Algorithm for Finding a Portfolio with the Highest Sharpe Ratio (January 19, 2011). Available at SSRN: https://ssrn.com/abstract=1767338 or http://dx.doi.org/10.2139/ssrn.1767338

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