However, the discrete-time model is more in line with actual investment of financial markets, and the realization of continuous time model usually requires discrete means, so this paper studies the minimum variance portfolio
selection when there's the liquid asset in the discrete-time financial market.
The study found that minimum variance portfolio
showed best performance.
Yilmaz (2010) provides evidence for the improved covariance estimation using the DCC-GARCH model for a global minimum variance portfolio
by using data from the Istanbul Stock Exchange.
In addition to risk parity, risk-based strategies include minimum variance portfolio
theory and maximum diversification.
Next, a multi-objective optimization problem is formulated, where a minimum variance portfolio
achieves maximum effect of diversification.
The variance of a minimum variance portfolio
p can be obtained by analytically solving Markowitz's mean-variance model (8).
The global minimum variance portfolio
of a collection of risky assets is defined as the efficient trading position that entails the lowest level of variance and is located to the utmost left of the efficient frontier.
To compute the minimum variance portfolio
select the Portfolio worksheet and go to Tools>Solver.
The minimum variance portfolio
had an average rate of return of 13.70 percent and a standard deviation of 11.79 percent.
portfolio, which is the minimum variance portfolio
TABLE 4 Asset Correlations and Optimal Portfolio Weights, Returns, and Standard Deviations Entire Sample: 1993:Q4-2009:Q4 VLSI S&P 500 LT Corp Panel A: Correlations VLSI 1 S&P 500 0.067 1 LT Corp 0.020 -0.058 1 Panel B: Minimum Variance Portfolios
Weight 3.24% 24.68% 72.08% Return 1.96% 1.36% 1.69% St.
Let us denote [epsilon] as the weight of the lending tangency portfolio and (1 - [epsilon]) as the weight of the borrowing tangency portfolio used to construct a third portfolio on the envelope of minimum variance portfolios
for a given expected return.