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Vector of

expected returns

Variance-covariance matrix

.05

.000132 .000066 .000098 .000118

.08

.000066 .000441 .000468 .000550

.09

.000098 .000468 .000866 .000821

.10

.000118 .000550 .000821 .001576

Vector of ones
Range of returns (for graphs)
q

.2 , .199 .. .05

Coefficients (based on H+L)


a

T
1
l .U .e

T
1
e .U .e

T
1
l .U .l

b.c

1
U .l . b

1
U .e .a

1
U .e .c

1
U .l .a

2.29213
G=

27.26029

0.49202

H=

0.47661
0.3235

14.12655
8.04834
5.0854

Optimal portfolio weights, given return


W( E )

H. E

Variance, given return


3
3
W( E ) i. W( E ) j. U i , j

n( E )
i=0 j=0

1
1

d
H

Minimum variance portfolio, MVP:


Expected return of MVP
1

a. c

= 0.05312

Variance of MVP
c

= 1.1736 10

Standard deviation
c

1
0,0

= 0.01083

( r )

n( r )

.2 , .199 .. .05

Expected return

0.1

0.05
q

0.05

0.002

0.004

0.006

0.008

0.01

n( q )

Variance

Expected return

0.1

0.05
q

0.05

0.02

0.04

0.06

0.08

0.1

n( q )

Standard
deviation

Expected return
0.1

0.05
r

0.05

0.02

0.04

0.06

0.08

0.1

( r )

Standard
deviation

Expected return

0.1

0.05
r

0.05

0.002

0.004

0.006

( r )

0.008

0.01

Variance

Parabola constants
b
X0
2
b. c a

X1

X0 = 0.00127

2. a
b. c

X1 = 0.04346

X2
b. c

X2 = 0.40905

Zero-covariance portfolio
Expected return
z( r )

a. c

d. c

a. c

Risk free asset also available


Risk free rate

0.02

Variance, given expected return


s( r )

(r

2
f) . b

2. a . f

c. f

Portfolio weights
w( r )

1
U .( e

f. l ) . ( r

f). b

2 . a. f

c. f

Standard deviation
0.1

0.08

0.06
n( q )
s( q )

0, 0

0.04

0.02

0.05

0.1
q

0.15

0.2

Expected
return

Expected return of tangency portfolio


T

a. c

d. c

. f

a. c

Variance

T = 0.06178
Portfolio weights

Standard deviation

n( T ) = 1.48052 10

0.60787

n( T ) = 0.01217
w( T ) =

0.38078
0.02065
0.0093

( E )

1
U .( e

l. f ) . ( E

f ). b

2 . a. f

c. f

Range of returns
q

.08 , .079 .. .08

Standard deviation
0.1

0.08

n( q )
s( q )

0, 0

0.06

0.04

0.02

0.1

0.05

0
q

0.05

0.1

Expected
return

Expected return of tangency portfolio


T

a. c

d. c

. f

a. c

Variance

T = 0.06178

Standard deviation

n( T ) = 1.48052 10

Portfolio weights
0.60787

n( T ) = 0.01217
w( T ) =

0.38078
0.02065
0.0093

Comparing standard deviation

n( T ) = 0.01217

s( T ) 0 , 0 = 0.01217

Portfolio weights

0.60787
( T ) =

0.38078
0.02065
0.0093

Checking if portfolio weights for risky assets in tangency portfolio add up to one
( T ) . l = 1
Zero covariance portfolio to tangency portfolio

Expected return

z( T ) = 0.02
Portfolio weights

W( z( T ) ) =

Covariance

1.74693

T
W( z( T ) ) . U . W( z( T ) ) = 5.66122 10

0.20949

Standard deviation

0.31565
0.22179

T
W( z( T ) ) . U . W( z( T ) )

= 0.02379

Portfolio weights for a portfolio with a 9% expected return


No risk free asset available
0.16129
W( 0.09 ) =

0.77937
0.24774
0.13419

Variance of a portfolio with a 9% expected return


T
W( 0.09 ) . U . W( 0.09 ) = 6.73648 10

Standard deviation
T
W( 0.09 ) . U . W( 0.09 )

= 0.02595

Portfolio weights for a portfolio with a 9% expected return


Risk free asset available
1.01834
w( 0.09 ) =

0.6379
0.0346
0.01558

Variance of a portfolio with a 9% expected return

T
w( 0.09 ) . U . w( 0.09 ) = 4.15508 10

Standard deviation

T
w( 0.09 ) . U . w( 0.09 )

= 0.02038

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