I was requested by a finance startup to find a group of stocks in order to get yearly(2006-2014) return and risk to a desired level(minimum return -5%, avg return 10%).
I have been reading about it and I think "Modern Portfolio Theory" is related to this and Convex Optimization is being used to find the best solution. The problem is I have no idea if this is a difficult task or there are a lot of already available open source solutions to the problem given.
And that's my problem, because it's a topic I know almost nothing, I can't tell the startup how much the solution is going to cost. I'm thinking about offering this options:
1- Monthly fee(3 months) and if by the end of the period I find an acceptable solution(defined before start) I get a cash bonus.
2- Only receive a payment if I find an acceptable solution(much more high amount than 1).
3- Some other interesting proposal.
What do you think?, how do you handle this type of cases where you don't have previous experience?.
Edit: I'd like to mention that I have other clients so I can live without charging to this one for a while and I can tolerate some amount of risk in this project.
