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Mean-variance efficient ray
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Past exam of the mathematics course of the University of Cambridge
/
2022
/
ii
/
Paper 2
/
30K
/
b
/
Solution
Created
2026-09-24
Updated
2026-09-25
View more
For every nonzero-
risk
portfolio,
Var
(
X
1
)
E
X
1
−
(
1
+
r
)
X
0
=
θ
T
V
θ
θ
T
q
≤
q
T
V
−
1
q
.
(1)
Equality holds precisely for
θ
=
λ
V
−
1
q
,
λ
>
0
.
(2)
The maximum is therefore
q
T
V
−
1
q
. For each resulting
mean
, part (
a
) shows that this portfolio has the least possible
variance
, so every maximizer lies on the
mean-variance efficient ray
.
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