Data Analysis for Optimal Portfolio Model. Return Calculation. Return calculation: R t =(P t /P t-1 )-1 or Ln(P t /P t-1 ) Note: Be careful about the sequence of your returns, do not calculate returns backwards!. Input Statistics. Mean, standard deviation, covariance matrix:
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Rt=(Pt/Pt-1)-1 or Ln(Pt/Pt-1)
Minimize Portfolio Risk (σ p )
with respect to Wi
Sum of Weights = 1;
Portfolio return = 15% for example.
Minimum-Variance Portfolio Construction:
6. How to identify the optimal risky portfolio (P) on the efficient frontier when there is a risk free asset?
A * B = (0.6 0.4) * = 0.6* 0.10 + 0.4 * 0.15 = 0.12
= ( W1 W2 ) * = W1*ER1 + W2*ER2
= MMULT(A1:B1, C1:C2) for Excel command
= * * = *
= MMULT(A1:B1, MMULT(C1:D2,E1:E2))
2. How to identify the optimal risky portfolio (P) on the efficient frontier when there is a risk free asset?