The efficient frontier for bounded assets

Michael J. Best and Jaroslava Hlouskova

Mathematical Methods of Operations Research, 2000, vol. 52, issue 2, 195-212

Abstract: This paper develops a closed form solution of the mean-variance portfolio selection problem for uncorrelated and bounded assets when an additional technical assumption is satisfied. Although the assumption of uncorrelated assets is unduly restrictive, the explicit determination of the efficient asset holdings in the presence of bound constraints gives insight into the nature of the efficient frontier. The mean-variance portfolio selection problem considered here deals with the budget constraint and lower bounds or the budget constraint and upper bounds. For the mean-variance portfolio selection problem dealing with lower bounds the closed form solution is derived for two cases: a universe of only risky assets and a universe of risky assets plus an additional asset which is risk free. For the mean-variance portfolio selection problem dealing with upper bounds, the results presented are for a universe consisting only of risky assets. In each case, the order in which the assets are driven to their bounds depends on the ordering of their expected returns. Copyright Springer-Verlag Berlin Heidelberg 2000

Keywords: Key words: Parametric quadratic programming; mean-variance portfolio selection; efficient frontier; capital market line. (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:mathme:v:52:y:2000:i:2:p:195-212

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DOI: 10.1007/s001860000073

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