Chapter 3 Delineating Efficient Portfolios. Jordan Eimer Danielle Ko Raegen Richard Jon Greenwald. Goal. Examine attributes of combinations of two risky assets Analysis of two or more is very similar This will allow us to delineate the preferred portfolio THE EFFICIENT FRONTIER!!!!.
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The Minimum Variance Portfolio
Only legitimate shape is a concave curve
The Efficient Frontier with No Short Sales
All portfolios between global min and max return portfolios
The Efficient Frontier with Short Sales
No finite upper bound
All combinations of riskless lending and borrowing lie on a straight line
variance σPred2 = σ2 + σ2/T where:
σPred2 is the predicted variance series
σ2 is the variance of monthly return
T is the number of time periods
Xc = (σs2 – σcσsρcs)
(σc2 + σs2 - 2σcσsρcs)