Construction of an optimal portfolio: an application to sharpe's single index model

This paper presents an approach to the portfolio selection problem based on Sharpe's single-index model. To illustrate the model, a real portfolio selection problem is presented. The study is carried out to fulfill the objectives like (i) to construct an optimal portfolio by implementing Sharpe's single index model, (ii) to verify and investigate the optimal portfolio framed out of the selected stocks on the basis of risk and return (beta and expected returns, respectively). This attempt has been made by selecting the moist representative stocks of the Indian economy, that is, the securities listed in BSE Sensex. All the thirty securities have been taken for the study. Through implementing financial techniques suggested by Sharpe individually on these stocks, results have been found in terms of optimal portfolio. The research will be helpful for researchers to understand the practical aspect of the model as well as for investors who want to diversify the unsystematic risk by diversification of the investments.