Schweser states that corner portfolios are created when an asset class weight changes from 0 to positive or positive to zero. However, on alot of examples they show corner portfolios with weights in all asset class, i.e. different portfolio asset classes are not changing from 0 to positive or positive to zero. Anyone have any idea on this? Also, the corner portfolio definition stated above is the same for constrained and unconstrained portfolios, right? -Thanks.
Not sure about what you are asking in part 1. However, I think within each portfolio, you can have negative weigh by asset class. If you are constrained by no short position, that means you just can’t put negative weight into your choice of portfolios. For the second part, there is difference between constrained and unconstrained portfolios, without constraints, there won’t be corner portfolio on the efficient frontier (EF). With unconstrained portfolio, you have a smooth EF, no bumps (corner portfolio). Not sure that I answered your questions.
s23dino Wrote: ------------------------------------------------------- > Schweser states that corner portfolios are created > when an asset class weight changes from 0 to > positive or positive to zero. True on unconstrained portfolios. >However, on alot of > examples they show corner portfolios with weights > in all asset class, i.e. different portfolio asset > classes are not changing from 0 to positive or > positive to zero. Anyone have any idea on this? Constrained portfolios or something wrong. > Also, the corner portfolio definition stated above > is the same for constrained and unconstrained > portfolios, right? > Not the same > -Thanks.
Joey i am not sure what you mean CFAI clearly state that corner portfolio occurs only when there is a constraint (long only for instance) and when asset weight changes from pos to 0 or from 0 to pos (for long only)
Yea Schweser specifically says that constrained portfolios have corner portfolios and those corner portfolios are ones in which asset weights changes from pos to 0 or vice versa. And for those have Schweser look at question 7 through 11 for Reading 25 they show corner portfolios for a constrained portfolio however asset class weights are not changing from 0 to pos or vice versa (portfolio 1 and 2)? -Thanks.
I will tonite, i dont have books with me
Does anyone have any idea on this?