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How would I generate the optimal weights of a portfolio using the optimization procedure (shown below)

This is the portfolio - Each stock is weighted at 5%:8 8 9 5 5 6 2 9 5 1 1 8 66235448586% 08723 7. 450 86428 2 35023088710692967 93787257302 69009000194 94504505949849492 2 8 9882713 93971 341 559 4 0 3105607701044979407 1570787396110350721 88060740247301047 60498289071060 2161231 」3 2 2 84107566535569288414180 6098. 91 8 9487 490894984748 899397598891 267210 e999 u449 494949949494 4 9993 4448 269075 7091845890674 9522986725436 4214 403719340562514 5891 1 2 0s147 060758175596904431 951714644752520577 61247 91060 3161231 89040740152 3 CCG 0123456789012345670 123456789

with non-market risk prelmmun Summary of Optimization Procedure Once security analysis is complete, the optimal risky portfolio is formed from the index- model estimates of security and market index parameters using these steps: I. Compute the initial position of each security in the active portfolio as w-α/σ(e) 2. Scale those initial positions to force portfolio weights to sum to I by dividing by their sum, that is, wi = is i 7n 3. Compute the alpha of the active portfolio: OA-Σνίαϊ. 4. Compute the residual variance of the active portfolio: σ2CA)-Σ-1 w? σ2(ei). 5. Compute the initial position in the active portfolio: wa- 6, Compute the beta of the active portfolio: βΑ-Σ-1 wi βί. 7. Adjust the initial position in the active portfolio: wA- 8. Note: The optimal risky portfolio now has weights: wM 1 -WA wi WAW i-1 0 1+11-PA)wi 9. Calculate the risk premium of the optimal risky portfolio from the risk premium of the index portfolio and the alpha of the active portfolio: E(RP) (wM+ w*Pa)E(RM) + WA αΑ. Notice that the beta of the risky portfolio is wM WABA because the beta of the index portfolio is1 10. Compute the variance of the optimal risky portfolio from the variance of the index portfolio and the residual variance of the active portfolio:

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Answer #1

1. First you need to calculate the \alphai , \betai , and \sigma2 for each stock using historical prices. Find return from historical prices, then using CAPM model find \alpha , \beta . The variance of the error term in the model gives you \sigma2 (ei ) .

Then follow the steps given in instruction to get optimal risky portfolio.

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