0
$\begingroup$

I’m looking for a nice & detailed explanation for how to derive the formula for the weight of asset 1 in the tangency / maximum Sharpe ratio portfolio in Markowitz portfolio theory in a world with two risky assets and one risk-free investment. I tried but failed to derive myself, hence I’m looking for a reference.

The sources which I found only describe the general approach of how to derive the portfolio with the highest Sharpe ratio and only present the final formula (e.g. slide 42 of this presentation: http://www.kellogg.northwestern.edu/faculty/papanikolaou/htm/FINC460/LN/Lecture1.pdf)

Any recommendations?

Improve this question
$\endgroup$
2
  • $\begingroup$ Your link is not working to me. $\endgroup$
    – simmy
    May 19, 2016 at 9:13
  • $\begingroup$ Sorry, have corrected a type in the link in the meantime $\endgroup$
    – tk79
    May 19, 2016 at 12:35

2 Answers 2

Reset to default
1
$\begingroup$

in my book Introduction to Mathematical Portfolio Theory, we give two different derivations.

Most books give at least one, eg Luenberger, Pennacchi

Improve this answer
$\endgroup$
0
$\begingroup$

In: MODERN PORTFOLIO THEORY AND INVESTMENT ANALYSIS - ELTON, GRUBER, BROWN, GOETZMANN , chapter 5, you can find a good explanation of your issues.

Improve this answer
$\endgroup$
2
  • $\begingroup$ I've checked the 9th edition. Unfortunately it doesn't cover this. $\endgroup$
    – tk79
    May 20, 2016 at 7:05
  • $\begingroup$ Maybe you are right, in chapter 5 (yes nine edition) are shown various case with 2 risky asset. The case with riskless is only mentioned. However in chapter 6 there is an example with 3 risky asset plus a riskless (pag 98-99-100). The autors find the related tangency ptf and (max) Sharpe ratio. You can easily find the case with 2 risky asset plus riskless. $\endgroup$
    – markowitz
    May 20, 2016 at 13:47

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.