Minimum-variance frontier

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Minimum-variance frontier

Graph of the lowest possible portfolio variance that is attainable for a given portfolio expected return.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Minimum-Variance Frontier

In Markowitz portfolio theory, the frontier on a chart representing a portfolio with the least amount of volatility. That is, a minimum-variance frontier consists of data points representing stocks with a certain level of volatility and therefore risk, while the frontier represents a portfolio in which the volatilities of each individual stock offset each other. A minimum-variance frontier is also a Markowitz efficient frontier if it also represents the maximum level of return for its level of risk.
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References in periodicals archive ?
Markowitz's minimum variance frontier and TEV frontier appear in Fig.
As Roll (1992) demonstrated, the full tracking TEV frontier is a shift of Markowitz's minimum variance frontier, and the curvatures of both frontiers necessarily coincide (Fig.
Nevertheless, the following proposition shows how the computation is equivalent to the curvature of the minimum variance frontier generated using the same subset of stocks.
The TEV frontier generated from a subset of n stocks (n < N) is a shift of the minimum variance frontier obtained from the same subset of stocks.
In other words, the partial tracking minimum variance frontier and the full tracking frontier are not parallel.
For nearly the entire spectrum of G values considered in the graph, the minimum variance frontier dominates the two frontiers generated with the monoobjective models: the TEV frontier and the frontier curvature.
The greater curvature of the minimum variance frontier implies that the distance between it and the multiobjective frontier grows rapidly when [absolute value of G] ncreases.
This means the effect of including the curvature in the multiobjective model is dissipated, because the curvature of the minimum variance frontier is approaching the minimum curvature frontier.
We derived a condition when the effect of the omitted asset in generating the minimum variance frontier is eliminated in Proposition 1.
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