SIMPLE CRITERIA FOR OPTIMAL PORTFOLIO SELECTION: TRACING OUT THE EFFICIENT FRONTIER

In each of these papers, we assumed the existence of a risk free asset and hence a unique optimum portfolio. This was not necessary. The purpose of this paper is to show how this assumption can be relaxed and our simple technique used to generate the full efficient frontier. In particular, we will show how the simple techniques described in the above papers can be used to find all corner portfolios. Since portfolios intermediate to corner portfolios are linear combinations of corner portfolios, this technique allows the construction of the full efficient frontier. In this paper, we will demonstrate how to find the efficient frontier for two cases: the single index model and a model assuming the correlation coefficient between all stocks is identical. We will examine both the case where short selling is allowed and the case where it is disallowed. The extension of the procedure described here to all