Optimization of a Portfolio

(1) A process that maximizes expected utility as a function of exposure to the component assets where expected utility is defined as expected return minus the product of risk aversion and variance. (2) Use of a linear or quadratic model to structure a portfolio to maximize or minimize yield, long-term rate sensitivity, etc., or to increase or reduce exposure to certain industries, market sectors, or macroeconomic factors, subject to prespecified constraints. Also called Portfolio Optimization.

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