Investment Portfolio Optimization

Portfolio Optimization System:

1. Architecture:

interface Portfolio {
  assets: Asset[];
  riskProfile: RiskProfile;
  constraints: Constraint[];
  performance: Performance;
}

class PortfolioOptimizer {
  private readonly riskModel: RiskModel;
  private readonly returnModel: ReturnModel;

  constructor(config: OptimizerConfig) {
    this.riskModel = new ModernPortfolioTheory();
    this.returnModel = new CapitalAssetPricing();
  }

  async optimize(portfolio: Portfolio): Promise<Allocation> {
    const constraints = this.validateConstraints(portfolio);
    const efficientFrontier = await this.calculateEfficientFrontier();
    return this.findOptimalAllocation(efficientFrontier, constraints);
  }
}

2. Key Components: a) Risk Assessment

   • Modern Portfolio Theory
   • Value at Risk (VaR)
   • Stress testing
   • Correlation analysis

   b) Asset Allocation

   • Strategic allocation
   • Tactical adjustments
   • Diversification rules
   • Sector constraints

   c) Rebalancing Logic

   • Threshold-based triggers
   • Time-based schedule
   • Tax-efficiency
   • Transaction costs

3. Implementation:

   • Real-time market data integration
   • Machine learning for predictions
   • Monte Carlo simulations
   • Tax-loss harvesting

4. Monitoring:

   • Performance attribution
   • Risk metrics tracking
   • Compliance checking
   • Reporting automation

Company Context (Goldman Sachs):

• Risk management focus
• Quantitative approach
• Regulatory compliance
• Client customization