Applications in Finance

Wolfgang Härdle () and Leopold Simar
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Wolfgang Härdle: Humboldt-Universität zu Berlin, CASE — Center for Applied Statistics and Economics, Institut für Statistik und Ökonometrie

Chapter 17 in Applied Multivariate Statistical Analysis, 2003, pp 407-419 from Springer

Abstract: Abstract A portfolio is a linear combination of assets. Each asset contributes with a weight c j , to the portfolio. The performance of such a portfolio is a function of the various returns of the assets and of the weights c = (c 1,…, c p )T. In this chapter we investigate the “optimal choice” of the portfolio weights c. The optimality criterion is the mean-variance efficiency of the portfolio. Usually investors are risk-averse, therefore, we can define a mean-variance efficient portfolio to be a portfolio that has a minimal variance for a given desired mean return. Equivalently, we could try to optimize the weights for the portfolios with maximal mean return for a given variance (risk structure). We develop this methodology in the situations of (non)existence of riskless assets and discuss relations with the Capital Assets Pricing Model (CAPM).

Keywords: Risky Asset; Capital Asset Price Model; Portfolio Return; Portfolio Choice; Riskless Asset (search for similar items in EconPapers)
Date: 2003
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Chapter: Applications in Finance (2024)
Chapter: Applications in Finance (2019)
Chapter: Applications in Finance (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-662-05802-2_17

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DOI: 10.1007/978-3-662-05802-2_17

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