Microsoft PowerPoint - PoF.ppt

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Given a particular level of expected rate of return, the portfolio on the

minimum variance set

(“

bullet

”) has the

lowest standard deviation (or variance) achievable with the available population of stocks

ƒ

The portfolio with the lowest possible level of standard deviation is called global

minimum variance portfolio

(MVP)

, it divides the bullet in two halfs

ƒ

The top half of the “bullet” is called the

efficient set / -

frontier

(the portfolios in the efficient set have the highest

attainable expected rate of return for a given level of standard deviation)
Single-period random cash flows: Mean-variance portfolio theoryMinimum variance and efficient set