[PDF] The Global Minimum Variance Portfolio and Efficient Frontier

What is global minimum variance portfolio?

3.3 Global minimum variance portfolio The core idea of the GMV theory is to find the asset weights that minimize the portfolio variance, given the assets covariance matrix. There are no

What is global minimum variance (GMV)?

3.3 Global minimum variance portfolio The core idea of the GMV theory is to find the asset weights that minimize the portfolio variance, given the assets covariance matrix. There are no constraints, therefore, negative weights might appear, i.e. short sales are allowed.

How to minimize portfolio variance?

Given the estimated covariance matrix, this is approximately the optimal way to weight your portfolio to minimize the risk. By the usage of these weights and the sample covariance matrix, the minimized portfolio variance is calculated Twith formula (20), Y

How many covariance terms contribute to portfolio variance?

Notice that variance of the portfolio return depends on three variance termsand six covariance terms. Hence, with three assets there are twice as manycovariance terms than variance terms contributing to portfolio variance. Evenwith three assets, the algebra representing the portfolio characteristics (1.1) (1.3) is cumbersome.