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The general formula for the global minimum variance portfolio is $w=\frac{C^{-1} 1}{1^T C^{-1} 1}$ where C is the covariance matrix and 1 is a vector of 1's. In this case the covariance matrix is diagonal with $\sigma_i^2$ in the ith diagonal element. Its inverse is also diagonal and has $\frac{1}{\sigma_i^2}$ in the ith diagonal element. Evaluating the ...

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This will depend on the definition of "return on the long run". If we define the annualized return on the long run by $\frac{1}{T}\ln \frac{S_T}{S_0}$ for a certain time $T$ in the future, then \begin{align*} E\left( \frac{1}{T}\ln \frac{S_T}{S_0} \right) = \mu-\frac{1}{2}\sigma^2, \end{align*} as claimed. Note that $\mu$ is the instant, or instantaneous, ...

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Trying to shed some light here: What we also see using this here, is that if returns are log-normally distributed, ie. $$1 + r = \exp(\mu + \sigma Z),$$ with $Z$ standard-normal, then $$E[1+r] = \exp(\mu + \frac 12 \sigma^2)$$ holds. But the geometric mean $GM$ is given by $\exp(\mu)$ and we have $$\log(GM) = \mu = \log(E[1+r]) - \sigma^2 /2$$ and ...

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I agree on Richard. the simpler you choose, the better it is so as to get reliable estimates. What's your data frequency? purpose? For model construction as far as I am concerned, daily data from 2010 is enough. Otherwise, you could use a proxy asset for asset D depending on its nature. To clarify, if D is an ETF let's say CAC 40 ETF, concatenate its return ...

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You can consider old prices for Stocks B, C and D to be "missing data" and apply techniques used by Statisticians to deal with such missing data. One approach, the EM algorithm, suggests you estimate the covariance for the common period, use that covariance matrix and the available data to generate pseudo data for the back period for the third stock and ...

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The short answer: Take all time series starting from 2010 (at most). The covarianc-matrix tells you something about the assets for a certain amount of time. E.g. if I estiamte the covaraince matrix of those 4 assets taking into account data from the last year (!) then I can expect that this matrix remains valid for the coming 1-3 months - if the markets ...

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