For corner portfolios does one always choose two adjacent (next to each other) portfolios if there are constraints on negative weights?
For example practice exam volume 1, exam 1 morning session, question 10 A. In this question portfolio 3 and 4 bracket the return objective, but portfolio 2 has a higher sharpe ratio than portfolio 3. If the question had not asked for adjacent corner portfolios and instead asked for the two corner portfolios (without the word adjacent), would it have been correct to select corner portfolios 2 and 4, based on corner portfolio 2's superior sharpe ratio to portfolio 3 and the fact that the return objective was still bracketed? Doing so would not have exceeded the maximum standard deviation stated.作者: mar350 时间: 2011-7-11 19:23
calculate the combined sharpe for both combination. I think you'll find that 3/4 is superior.作者: bodhisattva 时间: 2011-7-11 19:23
1.Short Constraints ( i.e. no shorting ) use bracketing portfolios
2.No constraints( i.e borrowing / lending allowed ) use the highest sharpe portfolio as first and risk-free as second portfolio
