Decrease of the portfolio computational workload following the Capital Asset Pricing theory

Abstract

The paper derives an evaluation algorithm for decreasing the computational workload in definition and solution of portfolio optimization problem. The algorithm applies numerical relations, which lead to transformation of the classical portfolio problem to optimization one, which contains parameters from Capital Market Theory. The decrease of the computational workload results from the inclusion of beta coefficients in the portfolio problem instead of evaluation of the covariance portfolio matrix. The algorithm is illustrated by solution of portfolio problem with mutual funds on Bulgarian Stock Exchange.