Hi all,
According to Markowitz, an investor’s optimal portfolio is determined where the:
“The optimal portfolio for an investor is determined as the point where the investor’s highest utility curve is tangent to the efficient frontier.”
my question is - how many utility curves do each investor have? and what causes them to have multiple?
Many thanks
Infinitely many: one for each level of utility.
There’s a curve for all of the risk/return combinations that have a utility of 1.
There’s a curve for all of the risk/return combinations that have a utility of 2.
There’s a curve for all of the risk/return combinations that have a utility of 2.25.
There’s a curve for all of the risk/return combinations that have a utility of \sqrt{2\pi}.
And a whole lot more.
thank you. this was the missing link i didn’t understand but now got it.
thank you
My pleasure.