Application of Mean-Variance Model for Firefighter

Abstract

A good investment portfolio can make the investment get more returns, which requires investors to adopt appropriate methods to optimize the investment portfolio. A portfolio is not just a simple sum of assets, it requires the use of suitable models to analyze optimal asset allocation. This paper analyzes the asset allocation of firefighters, and uses three methods of mean variance analysis, CAPM model and FF3F model to optimize the pension investment ratio of firefighters. At the same time, this paper analyzes multiple stocks from four industries including retail, technology, manufacturing, and food, and strives to find the investment portfolio with the most potential pension. The results show that in CAPM, the largest weights of both maximum sharp ratio portfolio and the minimum portfolio belong to the possession of ‘NSRGY’, while in the FF3F model, the greatest weight of the maximum sharp ratio portfolio belongs to ‘TM’ possession and the greatest weight of the minimum variance portfolio belongs to ‘NSRGY’. This research could help retirees on the same pension type better allocate their pension assets and optimize their investment portfolios. At the same time, this paper also analyzes the investment performance of stocks in different industries under the same fixed proportion of pension.