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Risk and return V: Portfolio optimization
- Objectives
- Inputs and output
- Minimizing risk
- Minimizing risk subject to a target return
- Maximizing expected return subject to a target level of risk
- Maximizing risk-adjusted returns
- Restrictions
- Variations of the standard problems
- The big picture
- Excel section
In Chapter 4 we discussed how to calculate the risk and return of a portfolio. In this chapter we’ll discuss how to obtain optimal portfolios. More precisely, we’ll look into how to minimize risk; how to minimize risk for any desired level of return; how to maximize expected return for any desired level of risk; and how to maximize risk-adjusted returns. And we’ll discuss in detail how to implement all this in Excel. (Before reading this ...
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