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Excess Return Covariance Matrix is Singular - Cash return and risk free rate are the same

I believe this answers your question? "Adding" risk-free asset to covariance matrix after the fact but the answer is replacing cash with the riskless asset. The key message is either - ...
KaiSqDist's user avatar
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0 votes

Reverse optimization: How to generate the expected portfolio returns given the weights and a series of constraints on those weights?

This is not yet an answer, but too long for a comment. Let's start without the box constraints and solely impose $\sum_iw_i=1, i.e. w^T\mathbf{1}=1$: $$ \begin{align} \max_w\quad & w^T\mathbf{\mu}-...
Kermittfrog's user avatar
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2 votes

How to construct a delta-neutral portfolio containing stocks using correlations?

The answer depends on your definition of "neutralise". For some people it is a matter of being dollar neutral. Then the answer is straightforward. In your case it seems that you have also in ...
lehalle's user avatar
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2 votes

Application of Leverage in Different Interest Rate Environments to an Efficient Portfolio

The composition of the tangency portfolio in standard mean-variance analysis does depend on the risk-free rate. The degree of that dependence depends on whether or not we hold the expected returns of ...
RRL's user avatar
  • 3,680
0 votes

How to prove that the return criteria for adding an investment A to an existing portfolio can be represented using Sharpe Ratio Approach

Denote the old Sharpe ratio by $SR_p^{old}$, and the new one by $SR_p^{new}$. Buy the new asset (i.e., go from old to new) if and only if $SR_p^{new} \ge SR_p^{old}$. let $R_p^{old}$ be the return to ...
user86422's user avatar

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