0
$\begingroup$

I understand Markowitz and targeting returns to minimize our variance. I know this optimization problem well and its constraints. However when the reverse scenario is to be considered I get very confused. How do I mathematically show optimal portfolio weights when I want to target my variance to maximize my return?

I am supposed to use a Lagrangian method but all I get is lambda in relation to some optimal weight. I know that the optimal variance condition should be 1Tranpose * covariance matrix * 1 where 1 is the ones matrix. I can mathematically show this but cannot understand how this optimal variance relates to the optimal weights and portfolio return.enter image description here

Improve this question
$\endgroup$
2
  • $\begingroup$ I assume this is homework or self-study? If so, please tag with self-study. $\endgroup$
    – kurtosis
    Commented Aug 9, 2020 at 17:55
  • $\begingroup$ @kurtosis thanks for the suggestion $\endgroup$
    – eruiz
    Commented Aug 9, 2020 at 17:58

0

Reset to default

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.