Portfolio Optimization with PuLP in Python
- Problem:
You have a budget to invest in different assets, and you want to maximize your return while keeping risk under a certain threshold. - PuLP Solution:
Formulate the portfolio optimization problem where the objective is to maximize the expected return subject to risk constraints.
1 | import pulp |
Explanation:
- assets is a list of the different assets you can invest in.
- returns is a dictionary that stores the expected return (as a percentage) for each asset.
- risk is a dictionary that stores the risk (variance) for each asset.
- budget is the total amount of money available for investment.
- max_risk is the maximum level of risk you’re willing to accept.
The problem is then defined to maximize the expected return while staying within the budget and risk constraints.
The solution tells you how much to invest in each asset.
Result
1 | Invest in Asset1: $0.00 |
The result of the portfolio optimization problem suggests the following investment strategy:
- Asset1: Invest $0.00 (no investment).
- Asset2: Invest $33,333.33.
- Asset3: Invest $66,666.67.
Explanation:
The optimization algorithm has determined that the best way to maximize your expected return, given the constraints on your total budget and acceptable risk level, is to allocate all of your budget to Asset2 and Asset3. Specifically:
- Asset2 and Asset3 have the most favorable combination of return and risk, so they receive the entire budget.
- Asset1 is not invested in because its return-risk profile is less optimal compared to the other assets.
This strategy aims to achieve the highest possible return while staying within the predefined risk tolerance.







