dec1892 Wrote: ------------------------------------------------------- > Cheers for the above but still not 100% clear to > me. Maybe if I give an example ye can explain: > A B > C D E F > Security 1 weight 100 80 60 > 40 20 0 > Security 2 weight 0 20 40 > 60 80 100 > expected return 8% 9% 10% 11% > 12% 13% > standard deviation 14% 13.2% 13.9% 15.8% > 18.6% 22% > which are corner portfolios? > > which are the EF?> Here is what I think : Concept of corner portfolio comes into the picture only when short selling or borrowing at risk free rate is not allowed. Now assume that you have 7 security. Security 1 to security 7. Assume that you have got data for expected return and standard deviation. Suppose one situation is where you put 40% of portfolio into security 1 and in remaining securities 10 percent each . Consider in second situation is where you put 10% of portfolio into security 1 and in remaining securities 15 percent each . Consider several situation like this. Now plot a graph for all situations. for efficient portfolio accept only those situation which provide maximum return for a given level of risk or least risk for a given level of return. Efficient frontier will not be soomth. It will have several point and these points are corner portfolio. With the help of corner portfolio you can create any portfolio as linear combination of two corner portfolio
You are all way overthinking this.
Corner portfolio’s is the easiest thing that ever happened to L3. Move on…