Models of investment portfolio formation and optimization

Abstract

The primary objective of portfolio investments is to achieve an optimal balance between risk and return, providing a set of securities with investment properties that cannot be attained through individual securities alone and are possible only through their combination. A new investment quality with specific characteristics is achieved only in the process of portfolio formation. The purpose of the article is to explore the essence of models most commonly used in the formation and optimization of investment portfolios and to develop an algorithm for comparing alternative investment projects using various mathematical methods. The research methods include general scientific methods of abstraction, analysis, and synthesis. To achieve the research objectives, the dialectical method of scientific knowledge was applied. The abstract-logical method of theoretical and factual generalizations was used to formulate conclusions and recommendations. The information base of the study consists of scientific works by Ukrainian scholars on the subject, as well as the authors’ own research results. The research results reveal that the main goal of enterprises when forming an investment portfolio is to select the most profitable investment options and minimize potential risks. Various methods are used to determine portfolio profitability. It has been established that at the portfolio formation stage, it is crucial to define the types and number of investment projects to be implemented. A step-by-step algorithm has been developed for comparing pairs of alternative investment projects of different durations in cases where numerical evaluations of capital investment efficiency criteria, obtained using net present value and internal rate of return indicators, are contradictory. Conclusions. A critical analysis of the most frequently used models for investment portfolio formation has been conducted. It has been established that the rate of return plays the most important role in portfolio formation. Therefore, it is essential to create a diversified portfolio, including investment projects that complement or influence each other. Moreover, the specific nature of real investment objects significantly affects the optimization of the investment portfolio.