medium · Quantitative Finance numerical
Which of the following conditions must hold for the tangency portfolio to be well-defined and unique in a standard mean-variance optimization?
- Every single one of the assets' expected returns must be a strictly positive value for tangency.
- The covariance matrix Sigma must be diagonal, meaning all asset return correlations are zero.
- The risk-free rate r_f must be less than the expected return of the Global Minimum Variance portfolio.
- The number of assets n must exceed the number of return observations used to estimate the covariance matrix.
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