6. Efficient Frontier
g. describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio;
What is the mean-variance portfolio theory?
Any investor will choose the optimal portfolio from the set of portfolios that:
- Maximize expected return for a given level of risk; and
- Minimize risks for a given level of expected returns.
What is the minimum-variance frontier?
The minimum-variance frontier shows the minimum variance that can be achieved for a given level of expected return.
What is the efficient frontier?
The efficient frontier is the set of mean-variance combinations from the minimum-variance frontier where, for a given risk, no other portfolio offers a higher expected return.