patricksfxc said:https://www.dropbox.com/s/4gwmoo00hn523fk/hi.jpg
I've been working on it for several days...the dual problem is way easier but the professor asked us the do the primal one
The Markowitz Model, also known as Modern Portfolio Theory, is a mathematical framework used to determine the optimal allocation of assets in a portfolio. It works by analyzing the risk and return of each asset and finding a combination of assets that will minimize risk while maximizing return for a given level of risk tolerance.
The Markowitz Model assumes that investors are risk-averse and seek to maximize their return for a given level of risk. It also assumes that investors have access to all relevant information about the assets in the portfolio and can make rational decisions based on this information.
The Markowitz Model emphasizes the importance of diversification in reducing risk. By combining assets with different risk and return characteristics, the model can create a well-diversified portfolio that is less susceptible to market fluctuations.
The efficient frontier is a graphical representation of all possible combinations of assets in a portfolio that offer the highest return for a given level of risk. The Markowitz Model uses the efficient frontier to determine the optimal portfolio allocation that provides the highest return for a given level of risk.
Some limitations of the Markowitz Model include the assumption of a normal distribution of returns, which may not accurately reflect real-world market conditions. It also does not consider external factors such as taxes and transaction costs, which can impact the actual returns of a portfolio. Additionally, the model assumes that investors have perfect knowledge and will always act rationally, which may not always be the case.