An Overview of Optimization Models for Portfolio Management

Abstract

The mean-variance model is fundamentally an optimization model with two objectives: maximizing portfolio return and minimizing portfolio risk. Over the past 70 years, advancements in optimization have generated a substantial body of research in portfolio management. This review article provides an educational overview of portfolio management optimization models, with a particular focus on recent developments. Beginning with the fundamentals of optimization and the mean-variance model, the article explores key models that build upon the traditional framework, address asset allocation challenges, and facilitate personalized portfolio management. The review also covers emerging topics, including environmental, social, and governance (ESG) investing and the integration of machine learning into portfolio construction.