Just reading through this and a little confused. In describing how to calculate the minimum variance frontier, it says you have to set a target return of say 10%. Then among those portfolios, choose the one with least variance. But then in the example it generates portfolios with returns all over the board (including less than 10%) and says they’re part of the minimum variance frontier. What gives? (FYI: This is pg. 196-198 in Book 3 Schweser)
the 10% is simply an example and Figure 4 on page 197 is taking the 10% example to the next level in that you also target 2%, 4%, 6%, etc. in addition to 10% and optimize different portfolio strutures to calculate the lowest variance. Then you graph your data of portfolio returns with the lowest possible variance and you generate the minimum variance frontier.
The MVF just plots out the the portoflios with the smallest variance for each target return. Think about all portfolios as points on the return/variance chart, and the MVF line joining all those to the far left (ie smallest variance). The 10% example is just one point on this MVF line.
ahh - makes perfect sense now. Thanks to both!