“Constructing an optimal portfolio using Sharpe's single index model”

The foundation of Modern Portfolio Theory was laid by Markowitz in 1951. He began with the simple premise that since almost all investors invest in multiple securities rather than one, there must be some benefit in investing in a portfolio of securities. He measured riskiness of a portfolio through variability of returns and showed that investment in several securities reduced this risk. His work won him the Nobel prize for Economics in 1990. Markowitz's work was extended by Sharpe in 1964, Lintner in 1965 and Mossin in 1966. Sharpe shared the Nobel prize for Economics in 1990 with Markowitz and Miller for his contribution to the Capital Asset Pricing Model (CAPM). This model breaks up the riskiness of each security into two components - the market related risk which cannot be diversified called systematic risk measured by the beta coefficient and another component which can be eliminated through diversification called unsystematic risk. In this research work, by using the concept of Sharpe Single Index Model I had try to create one portfolio which is optimum using real market date of SENSEX 30 Securities