International Academic Journal of Social Sciences

  • ISSN 2454-3918

Selection of an optimal portfolio of projects using the modified model of Markowitz

Roya Darabi , Ali Akbar Mohsenzadeh Ganji and Reza Nemati Koshteli

Abstract: Part of the financial and accounting literature is related to the selection of the optimal portfolio of financial assets. Harry Markowitz in the 1950s proposed a mathematically strong model for this. His model provides optimal weights in portfolio assets based on minimizing (maximizing) of the standard deviation (expected return) of portfolio of financial assets at a certain level of return (risk) assets. However, in financial and accounting literature, optimal portfolio of projects has received less attention, largely because of risks and difficulties related to the calculation of risk and return of projects. In this paper, based on modified Markowitz model and using data from IRIAF Cooperative Foundation projects (Projects at point zero of the construction as of autumn 2016) and cash flows derived from econometric studies and interviews with specialists and obtaining a net present value function using Monte Carlo simulation and the mean and standard deviation, it was tried to optimize the project based on the said model. Findings based on modified model Markowitz as well as data relating to five projects of IRIAF Cooperative Foundation at point zero of construction show that with an increased risk projects (SD), the net present value of projects increases and also that unlike the efficient center of conventional Markowitz model, efficient center obtained based on modified model is discontinuous.

Keywords: optimization, Monte Carlo simulation, Markowitz

Page: 39-51

Volume 3, Issue 2, 2016