For portfolios constructed with and without short selling from the three securities in Exercise 5.12 compute the minimum variance line parametrised by the expected return and sketch it a) on the w2, w3 plane and b) on the σ, μ plane. Also sketch the set of all attainable portfolios with and without

Question

For portfolios constructed with and without short selling from the three securities in Exercise 5.12 compute the minimum variance line parametrised by the expected return and sketch it a) on the [latex]w_2, w_3 [/latex] plane and b) on the σ, μ plane. Also sketch the set of all attainable portfolios with and without short selling.

Accepted Answer

The weights and standard deviations of portfolios along the minimum variance line, parametrised by the expected return [latex] μ_V [/latex], are

[latex]w≅[−2.027 + 13.492μ_V 2.728 − 14.870μ_V 0.298 + 1.376μ_V][/latex]
[latex] \sigma _{V}=\sqrt{0.625 − 6.946μ_V + 20.018μ^{2}_{V} } .[/latex]

This minimum variance line is presented in Figure S.8, along with the set of attainable portfolios with short selling (light shading) and without (darker shading).

Question 5.14: For portfolios constructed with and without short selling fr...

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