n of the standard deviation for a portfolio of assets under a number of potential assumptions. The Markowitz (1959) mean variance model is predicated on a set of assumptions which permit the development of a result in which a single asset or portfolio of assets is considered as efficient, if no other asset or portfolio of assets offers higher expected returns with the same or lower risk, or lower risk with the same or higher returns.
From the basic equation and set of assumptions, the next step in the Markowitz mean variance portfolio selection model is the actual construction of portfolios from among the set of all available risky assets or securities. The inputs required in this selection procedure are (1) the expected rate of return for each security, (2) the expected variance of return for each security, and (3) the expected covariance of return for each security with every other potential security. These inputs permit the identification of the following combinations of securities for a portfolio:
1. The first set of combinations include those se
...