CHAPTER 8 Portfolio Selection— Markowitz Model
Introduction
In his 1952 seminal article, Harry Markowitz stated that the objective of portfolio selection is to determine the allocation of securities in a portfolio such that it yields the maximum expected return given a specified risk or, alternatively, the minimum portfolio risk given a specified portfolio expected return. Given Equation (7.2) for the portfolio's expected return and Equation (7.11) for the portfolio variance, the Markowitz portfolio selection objective therefore involves determining the weights (wi) for those equations that yield either the maximum E(Rp) given a specified V(Rp) or the minimum V(Rp) given a specified E(Rp). In this chapter, we examine the Markowitz portfolio ...
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