bcp901

Another question. Are the 6 asset classes on P.252 of CFAI Text Vol 3 selected by the investor ? Or ?

laurab

yes...well kind of...they are the portfolios available to the investor. In theory, you would include all available portfolios/assets in the analysis.

In reality though, this exercise is more philosophical than practical. Deterministic, one period optimization is very constraining. And if you use historical sample stats, your optimal portfolio can look very strange. So oftentimes to get a realistic optimal portfolio, if you're going to do mean variance optimization, you have to choose a limited sample of available assets, or a set of assets already aggregated into portfolios/asset classes.

RMontgomery

Thanks for you all. I don't know why these are even not explained in the text. I now have a more clear picture about it, although not completely clear.