# Tag Info

Accepted

### Why does the Markowitz mean-variance model require the assumption of normality?

it doesn't require normality. What it requires is that the investor's decisions are determined by mean and variance. A normal distribution is determined by mean and variance, so if you assume joint ...
Accepted

### What does the concept "standard Markowitz approach" include?

The Markowitz mean-variance model is the basis for many extensions and portfolio solutions that have been discovered over the years: The standard model (Markowitz, 1952, 1959) originally only ...

Accepted

### Covariance Between Two Frontier Portfolios

Let $\Sigma$ denote the covariance matrix of our asset universe, $\mu$ is the vector of expected returns. Further, $\mathbb{1}$ is a vector of ones. Let's identify the vector of the minimum variance ...

### Mean Variance Portfolio theory and real-world problem?

It is well known that the MV-optimal portfolio has some very bad properties in practice: Backtesting: The MV portfolio performs very bad in backtesting applications Diversification: The MV portfolio ...
Accepted

### Can the differential operator be removed to get the mean/variance of an Ito process?

This is wrong! Notice that $dX_t=\mu(t,X_t)dt + \sigma(t,X_t)dW$ is a shorthand for $$\int_0^tdX_s = \int_0^t \mu(s,X_s)ds + \int_0^t\sigma(s,X_s)dW_s$$ Integrating: X_t-X_0 = \int_0^t \mu(s,X_s)...

### How to perform portfolio optimization with user-defined expected return and variances using R?

You can use the package quadprog and define everything yourself. Code can look like this: ...

### Is this realized "efficient" frontier reasonable?

Nothing is "wrong," in the sense that your findings are out of line, but there is a very deep issue that is wrong. I have written a set of papers on this. Since you are not a student, but someone ...
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### Mean Variance portfolio optimisation (Long Only) CVXPY including cardinality constraint

In a quick and easy first step you could add $L_1$-regularization to the Markowitz problem. That is, you add a term $\lambda ||w||_1$ to the goal function of your optimization problem (where $w$ are ...
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### Economic intuition behind pricing cash flow

All that's going on here are essentially consequences of a linear pricing function. That asset prices should be linear in their payoffs makes intuitive economic sense: the value of a basket of ...
Accepted

### Methods for superior estimates of returns in m.v. portfolio optimization

Expected returns are very difficult to estimate reliably without incurring estimation error as found out by Merton (1980) "On estimating the expected return on the market". This is why estimating ...

### Tangency portfolio with two additional constraints so that portfolio weights are unconstrained

Yes there are two ways to solve the tangency portfolio: closed-form analytical solution optimization problem (maximization of the Sharpe ratio) The closed-form analytical solution you incorrectly ...