My Math Forum  

Go Back   My Math Forum > Science Forums > Economics

Economics Economics Forum - Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance


Reply
 
LinkBack Thread Tools Display Modes
September 23rd, 2011, 01:13 PM   #1
Newbie
 
Joined: Sep 2011

Posts: 1
Thanks: 0

portfolio optimization, efficient frontier

Hello,

I am trying to understand something:
I learned that for a risky portfolio, the efficient frontier is a parabola (sigma is function of E).
Also, when there is a riskless esset, the efficient frontier is a line.
Its tought that in order to find that line, one needs to find a line that passes through point (E=m, sigma=0, when m is the expectation of the riskless esset), and the line should be tangent to the parabole. That parabola is the one given when excluding the riskless esset.

My question is:
Why should there be a tangent point?
Why would that line and the parabola share some certain E with the same sigma?
Couldn't it be that for every possible E, the portfolio with the riskless esset will have smaller sigma?

Thank you.
lior is offline  
 
Reply

  My Math Forum > Science Forums > Economics

Tags
efficient, frontier, optimization, portfolio



Thread Tools
Display Modes


Similar Threads
Thread Thread Starter Forum Replies Last Post
Calculating W1 and W2 of a portfolio Rolladan Advanced Statistics 1 February 25th, 2014 05:27 AM
Portfolio problem Filipe Martins Economics 0 August 29th, 2013 09:22 AM
determine efficent frontier mksquad Economics 0 May 10th, 2013 06:10 AM
Eigenvalues & Eigenvectors applied to Portfolio Optimization gbaileyzn Economics 1 January 5th, 2013 11:49 AM
Efficient Prime Factorization ezgigurkan Number Theory 4 July 17th, 2008 05:12 AM





Copyright © 2019 My Math Forum. All rights reserved.