This project was implemented as part of the Systems Engineering Senior Design Project at Washington University in St. Louis in the Fall 2017 semester. The objective of this project is to provide a tool that will allow investors to gain insight into potential investments and make smarter investment decisions. Mathematically, this is done by solving portfolio optimization problems that incorporate stochastic asset pricing models.
Portfolio optimization is becoming an increasingly important topic due to self-directed brokerages, which allow anyone to build their own asset or stock portfolios. As a result of these brokerages, people are beginning to take finances into their own hands instead of turning to professional portfolio management services. However, investors using these brokerages are often at the disadvantage of having less available quantitative tools to help them analyze potential investments.
The portfolio optimization tool being constructed and investigated through this project is intended to assist these investors, as well as anyone else interested in evaluating assets. This is achieved by applying stochastic pricing models to stocks that an investor would like to consider. These models help provide insight into future trends of the selected stocks. After predicting trends for the selected stocks, we can apply mathematical optimization principles to help build a portfolio that will hopefully reduce risk and improve returns for an investor. It is however important to note, that these models are all probabilistic, meaning that it is impossible to predict future stock price movement with 100% certainty.
Overall, we did conclude that our platform is capable of helping investors derive new and significant and reasonably accurate insights into potential stocks and portfolio constructions.