What is the mean-standard deviation frontier, and what is the mean-variance-efficient (MVE) portfolio?
What will be an ideal response?
The mean standard deviation frontier is the locus of the portfolios in expected return–standard deviation space that have the minimum standard deviation for each expected return. Because variance is the squared value of standard deviation, it is therefore also often referred to as the minimum-variance frontier. The MVE is the portfolio on that frontier that maximizes the Sharpe ratio. It can be found by drawing a line emanating from the risk free rate that is just tangent to the mean standard deviation frontier. The tangency point represents the MVE's expected return and standard deviation. The MVE is therefore also referred to as the tangency portfolio.
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