CHAPTER 3: RESULTS

3.1 Case of not allowing short selling

We will first construct the optimal risk portfolio. To find the proportion of stocks in
the optimal risk portfolio, we use the Solve tooI in Excel:
- The box "Set Object": is the cell containing the Sharpe ratio value. The target is Max;
- The changed values are the weights of stocks in the portfolio;
- The condition is that the sum of the proportions is 100%;
- Tick the box "Make unconstrained Variables Non-Negative" in case short selling is not
allowed.
The following results:
Rate of return of portfolio E(rp) 23.59%
Standard deviation of portfolio ơp 28.1021%
Slope 0.7654
WCAS 0.00%
W
VHM 37.01%
W
CTC 60.36%
W
TCH 2.63%
WNT2 0.00%
The CAL is a straight line connecting the point where the risk-free rate is represented
to the point where the optimal risk portfolio is represented.
The efficient frontier and the CAL line are shown as follows:

6
 Standard deviation

•—Efficient frontier of risky asset —♦—CAL Line

Now that asset allocation is decided, we can find each investor's optimal capital allocation.
An investor with a coefficient of risk aversion A = 3 would take a position in portfolio p of:
= Ejr^-r, = . 90.78%
J
Aaị 3-0.28102

is the weight about the optimal risku portfolio.

So portfolio combine risky portfolio and risk free is:

Rate of return of portfolio E(rc) 21.61%

Standard deviation of portfolio 0c 26.78%
w
rf 9.22%

W
GAS 0.00%
WVHM 33.60%
54.80%
W
CTG

*TCH
2.39%
WNT2
0.00%