PORTFOLIO OPTIMIZATION

Inputs

Two Risky Assets and a Riskfree Asset

Display on the Graph

Risky Opportunity Set
+ Capital Allocation Line
+ Indifference Curve

Expected Standard
Return/Mon Deviation
E(r i )
si
Riskfree Rate (rf)

0.40%

0.00%

2.00%
3
Exp Ret
- Riskless
E i =E(r i )-r f
0.00%

Risky Asset 1

1.50%

10.00%

1.10%

Risky Asset 2

0.80%

5.00%

0.40%

Correlation (r)
Risk Aversion

Expected Return / Month

Display
on the
Graph

Risky Opportunity Set, Capital Allocation Line,

and Indifference Curve

1.50%

1.00%

0.50%

40.0%
2.2
4
15
8

0.00%
0.00%

5.00%

10.00%

15.00%

Standard Deviation (s)

100
50
14

22
Outputs

Opp Set Curve

Opp Set Curve
Opp Set Curve
Opp Set Curve

Proportion
in Risky
(x-axis)
Asset 1 or Standard
Opt Risky Deviation
-500.0%
-150.0%
-80.0%
-70.0%

Risky Asset Capital

Utility
Opp Set Allocation Indifference
Curve
Line
Curve
Expected Expected Expected
Ret / Mon Ret / Mon Ret / Mon

Optimal
Complete
Portfolio
Expected
Ret / Mon

s w2s 12 1 w s 22 2 w 1 w s 1s 2
2

Opp Set Curve

Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opt Risky Port
Cap Alloc Line
Cap Alloc Line
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve
Indifference Curve

-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
120.0%
250.0%
750.0%
0.0%
1000.0%

E r wE r1 1 w E r2

w1 E1s 22 E2 s 1s 2
/ E1s 22 E2s 12 E1 E2 s 1s 2

Indifference Curve
Indifference Curve
Indifference Curve
Opt Comp Port
Constant Utility Value

PORTFOLIO OPTIMIZATION
Returns
Month
Dec 2006
Nov 2006
Oct 2006
Sep 2006
Aug 2006
Jul 2006
Jun 2006
May 2006
Apr 2006
Mar 2006
Feb 2006
Jan 2006
Dec 2005
Nov 2005
Oct 2005
Sep 2005
Aug 2005
Jul 2005
Jun 2005
May 2005
Apr 2005
Mar 2005
Feb 2005
Jan 2005
Dec 2004
Nov 2004
Oct 2004
Sep 2004
Aug 2004
Jul 2004
Jun 2004
May 2004
Apr 2004
Mar 2004
Feb 2004
Jan 2004
Dec 2003
Nov 2003
Oct 2003
Sep 2003
Aug 2003
Jul 2003
Jun 2003
May 2003
Apr 2003
Mar 2003
Feb 2003
Jan 2003
Dec 2002

Descriptive Statistics

Stock
Stock
Stock
Stock
Stock
Stock
US Portfolio US Portfolio
Barrick Hanson
IBM
Nokia Telefonos
YPF
Small-Growth Small-Neutral
-3.50% -0.24%
2.06%
8.76%
8.63%
0.50%
-0.59%
0.83%
-2.37%
4.88%
5.69%
0.51%
9.01% -0.95%
2.58%
2.66%
1.79%
3.78% -0.12%
1.70%
-1.08%
3.49%
5.87%
5.01%
0.92% -3.49% 12.69%
0.93%
3.14%
7.02%
1.09%
1.11%
-8.23% 14.36%
1.20% -5.68%
6.76% -3.83%
3.22%
2.74%
8.68%
3.72%
5.00%
5.20%
3.02%
2.00%
-5.76%
-2.73%
4.06%
0.88%
0.78% -2.02%
12.51%
9.98%
-0.65%
0.27%
-3.30% -0.32% -3.86% -5.67%
6.23%
0.03%
-7.71%
-4.48%
0.80% -8.40% -2.61% -5.23%
-9.99% -17.69%
-0.80%
0.94%
11.90%
3.92% -0.16%
9.38%
-2.17% -3.07%
4.08%
5.49%
-0.48%
7.12%
2.78% 13.88%
1.21% -2.81%
-0.42%
-0.36%
-13.00%
5.15% -1.05%
1.08%
-5.72%
0.89%
8.59%
9.37%
12.90%
5.55% -1.09%
0.46%
-3.81%
3.63%
-0.18%
-0.17%
4.72%
7.22% -7.54%
7.16%
10.88% -11.58%
4.96%
4.87%
5.80%
1.22%
8.83%
1.55%
11.10% -0.88%
-3.60%
-2.86%
-13.06% -2.72%
2.07% -0.56%
-5.09% -11.61%
0.52%
0.57%
10.78% -0.94% -0.49%
7.22%
11.77%
8.89%
-2.03%
-1.36%
7.01%
5.52% -3.17% -1.11%
-0.33% 12.07%
6.72%
6.86%
-2.11%
5.30% 12.48% -4.14%
1.97%
1.06%
2.55%
4.20%
8.89%
3.30% -1.78% -1.30%
2.18%
8.57%
7.31%
6.21%
3.48%
0.39% -0.82%
5.49%
10.11% -0.65%
-6.42%
-5.65%
-6.82%
0.32% -16.42%
6.55%
-1.86%
3.40%
-3.98%
-2.38%
-3.78% -3.28% -1.29% -4.39% -11.23% -14.72%
0.39%
2.21%
13.88%
4.21% -0.72%
5.63%
5.28% 31.78%
-5.72%
-3.05%
-9.74%
8.86% -5.23% -2.47%
-2.82%
6.38%
4.22%
2.61%
-1.50%
6.76%
4.61% -3.12%
10.45%
2.83%
8.13%
8.62%
9.71%
8.98%
5.20%
4.88%
2.23%
6.99%
3.21%
1.17%
7.02% -0.26%
4.68% 12.37%
6.07%
0.00%
5.52%
4.92%
5.18%
7.96%
1.24% 15.57%
0.61%
5.71%
-2.05%
-0.20%
4.62% -1.00% -2.53%
2.22%
4.84% -2.81%
-9.86%
-5.22%
-3.22%
1.37% -1.22% -20.10%
-7.14%
3.53%
3.41%
4.33%
-4.42% -9.22% -0.50%
5.79%
-0.26%
0.31%
1.02%
1.04%
8.05% -0.35%
0.68% -1.92%
-1.43% -1.54%
-3.60%
-3.37%
-19.13%
1.67% -3.99% -30.90%
-2.22%
6.90%
1.08%
0.57%
16.30% -4.69% -4.83% -5.08%
3.62%
4.45%
0.44%
0.68%
3.82%
9.27% -2.59%
5.41%
-1.30%
1.86%
3.89%
4.32%
-13.27%
1.93%
7.07% 21.52%
4.20%
1.03%
0.79%
2.36%
1.66%
4.11%
2.36% -5.48%
0.68% 10.29%
2.91%
3.87%
15.28%
2.08%
1.37%
5.87%
2.95%
1.67%
8.13%
8.23%
3.41%
7.41%
1.31%
8.92%
5.24% 23.16%
-1.73%
-1.73%
-6.82% -1.78%
7.70% -4.24%
1.73%
8.96%
4.53%
4.99%
18.05% 12.95%
1.14%
6.44%
-1.77% -4.87%
8.37%
6.22%
-4.35%
3.25% -1.52% -6.87%
-1.74%
0.82%
2.40%
2.51%
2.37% -2.30% -6.30% -8.93%
4.63%
7.96%
13.10%
10.68%
17.66%
3.24%
3.90%
8.86%
0.30% 25.69%
11.21%
9.41%
-3.89% 18.50%
8.25% 18.30%
1.70% 14.65%
2.06%
0.63%
-3.50%
4.25%
0.62%
8.02%
3.11% 19.28%
-3.54%
-2.42%
-2.03%
6.93% -0.13% -8.00%
-2.87% 14.21%
-2.28%
-2.40%
6.77% -0.70%
0.90% -7.21%
-6.39% 13.27%
-9.13%
-4.09%

Nov 2002
Oct 2002
Sep 2002
Aug 2002
Jul 2002
Jun 2002
May 2002
Apr 2002
Mar 2002
Feb 2002
Jan 2002
Dec 2001
Nov 2001
Oct 2001
Sep 2001
Aug 2001
Jul 2001
Jun 2001
May 2001
Apr 2001
Mar 2001
Feb 2001
Jan 2001
Dec 2000
Nov 2000
Oct 2000
Sep 2000
Aug 2000
Jul 2000
Jun 2000
May 2000
Apr 2000
Mar 2000
Feb 2000
Jan 2000
Dec 1999
Nov 1999
Oct 1999
Sep 1999
Aug 1999
Jul 1999
Jun 1999
May 1999
Apr 1999
Mar 1999
Feb 1999
Jan 1999
Dec 1998
Nov 1998
Oct 1998
Sep 1998
Aug 1998
Jul 1998
Jun 1998
May 1998

5.80%
-2.65%
-3.11%
-3.20%
4.87%
-19.31%
-12.87%
9.10%
8.13%
2.87%
5.56%
7.22%
5.37%
-2.18%
-10.18%
8.30%
7.57%
-1.69%
-8.19%
1.64%
14.31%
-11.76%
4.71%
-5.56%
9.21%
12.98%
-12.31%
-4.39%
0.07%
-12.28%
0.30%
8.46%
7.12%
-3.79%
-0.40%
-7.42%
-1.75%
-0.66%
-15.78%
12.22%
4.37%
-4.19%
12.33%
-13.24%
17.88%
-3.51%
-7.22%
-2.22%
-2.50%
-5.65%
6.88%
53.92%
-20.64%
-14.94%
0.00%

-11.97%
9.99%
-10.94%
-15.58%
-1.47%
-12.19%
-7.43%
5.21%
-2.57%
14.66%
1.65%
-2.13%
0.33%
-2.12%
-2.32%
-9.69%
9.15%
-3.67%
5.01%
5.40%
20.00%
-11.36%
1.39%
-6.42%
27.73%
2.14%
-5.60%
-5.55%
2.26%
-17.19%
0.70%
-4.28%
5.89%
10.99%
-11.46%
-10.69%
-2.60%
7.14%
-0.17%
-8.64%
-4.57%
1.39%
-2.05%
-6.93%
12.46%
8.31%
24.04%
-16.02%
5.04%
5.15%
13.89%
27.70%
-4.41%
-15.04%
2.53%

-10.84%
10.31%
35.38%
-22.64%
7.31%
-2.22%
-10.51%
-3.76%
-19.47%
5.99%
-8.94%
-10.81%
4.65%
7.09%
17.83%
-8.23%
-4.87%
-7.31%
1.52%
-2.78%
19.70%
-3.72%
-10.70%
31.76%
-9.09%
-4.96%
-12.53%
-14.70%
17.74%
2.46%
2.10%
-3.64%
-5.81%
15.20%
-8.37%
4.06%
4.67%
5.04%
-18.80%
-2.86%
-0.80%
-2.76%
11.42%
11.03%
18.02%
4.41%
-7.24%
-0.61%
11.66%
11.36%
15.56%
14.10%
-14.86%
15.41%
-2.28%

-19.31%
15.60%
25.49%
-0.34%
7.21%
-14.43%
4.35%
-14.64%
-21.61%
0.81%
-11.41%
-4.42%
6.62%
12.16%
31.07%
-0.57%
-27.83%
-1.73%
-24.11%
-14.46%
42.45%
10.21%
-35.94%
-21.04%
1.76%
0.00%
4.57%
-8.66%
1.71%
-12.87%
-2.89%
-7.24%
1.01%
12.24%
7.30%
-3.16%
36.48%
21.15%
28.56%
7.50%
-1.72%
-7.10%
28.52%
-3.95%
-4.76%
15.55%
-5.88%
19.65%
22.93%
5.35%
18.82%
17.24%
-23.44%
19.87%
12.06%

0.07%
5.68%
8.31%
-4.07%
2.53%
-9.94%
-6.92%
-8.07%
-6.32%
6.21%
-0.25%
9.67%
5.27%
-1.63%
5.55%
-10.83%
5.28%
-1.18%
1.70%
-0.28%
9.67%
-1.45%
-1.35%
20.25%
-3.15%
-13.09%
1.47%
-1.97%
4.10%
-8.57%
18.03%
-17.18%
-11.75%
1.64%
23.48%
-5.32%
21.98%
8.29%
19.88%
-3.61%
-1.44%
-6.54%
1.58%
5.57%
14.69%
16.17%
11.77%
5.05%
5.51%
-11.69%
19.84%
24.46%
-28.42%
3.59%
2.20%

8.24%
24.30%
-4.27%
-14.01%
21.49%
-4.42%
-4.52%
-26.09%
-17.48%
5.53%
-2.09%
-11.52%
23.08%
8.78%
-0.34%
-16.65%
-9.18%
-5.23%
-20.64%
3.51%
-2.51%
-4.61%
1.94%
0.19%
-3.05%
1.11%
-3.10%
-11.04%
-3.34%
-4.37%
16.06%
4.03%
-8.81%
-0.16%
1.87%
-4.91%
-4.06%
-0.25%
-0.30%
-0.79%
-2.69%
6.73%
-9.82%
1.31%
32.44%
8.86%
-8.31%
14.08%
-6.11%
3.58%
11.26%
17.55%
-23.59%
-2.74%
-3.36%

13.90%
6.88%
-8.62%
-0.56%
-14.61%
-7.63%
-6.48%
-3.56%
8.99%
-8.16%
-5.15%
6.64%
9.20%
11.16%
-17.19%
-7.64%
-9.43%
6.43%
4.06%
10.10%
-7.34%
-12.22%
12.32%
2.75%
-16.23%
-8.11%
-7.08%
8.45%
-7.23%
17.15%
-7.77%
-14.24%
-13.62%
28.59%
0.65%
17.97%
12.78%
1.13%
0.82%
-2.88%
-1.24%
6.47%
1.34%
10.03%
0.03%
-9.31%
4.63%
6.77%
9.07%
4.85%
8.69%
-24.12%
-7.67%
0.74%
-7.44%

7.45%
4.24%
-7.66%
0.48%
-14.19%
-2.78%
-3.67%
2.73%
7.49%
-1.28%
1.13%
6.80%
7.15%
5.04%
-12.93%
-2.34%
-4.01%
5.18%
4.52%
4.98%
-1.49%
-0.47%
5.22%
9.18%
-4.26%
-1.07%
-0.20%
5.51%
1.50%
9.03%
-5.46%
-5.46%
-3.74%
15.35%
-0.25%
8.43%
6.11%
-0.58%
-0.80%
-3.06%
-0.86%
6.00%
1.57%
9.77%
0.20%
-6.93%
1.26%
3.30%
5.48%
3.58%
5.57%
-18.73%
-7.79%
-0.90%
-4.64%

Apr 1998
Mar 1998
Feb 1998
Jan 1998
Dec 1997
Nov 1997
Oct 1997
Sep 1997
Aug 1997
Jul 1997
Jun 1997
May 1997
Apr 1997
Mar 1997
Feb 1997
Jan 1997

-13.39% -0.61%
3.76%
0.66%
12.00% 19.98%
-0.35% 13.76%
4.00% -3.28%
12.48% -11.51%
-18.69%
1.96%
-16.72%
5.73%
8.52%
2.17%
-0.30% -5.15%
4.33%
1.22%
-13.37% -2.43%
13.54%
5.68%
-5.80%
6.56%
-15.92%
2.28%
5.12% -58.44%

1.59% -2.89%
11.54% 23.89%
-0.53%
8.52%
5.97% 32.68%
-5.62%
9.12%
-4.46% -16.37%
11.39% -5.71%
-7.06% -5.96%
4.55% 21.20%
-3.96% -9.59%
17.19% 16.20%
4.32% 11.58%
7.78%
2.31%
16.94% 10.90%
-4.51% -0.32%
-8.15% -12.57%

-16.15% -10.21%
0.46%
2.62%
11.94%
7.49%
3.03%
4.62%
-12.21% -10.97%
14.11%
1.70%
14.75%
5.77%
-16.44% -13.10%
13.84% 13.04%
-17.26%
1.47%
15.67%
5.11%
9.16%
2.90%
7.44%
8.97%
7.03%
4.24%
-0.93% -0.47%
3.36% -3.76%

0.78%
4.45%
8.29%
-0.32%
-2.16%
-3.05%
-6.09%
8.97%
3.85%
4.93%
3.82%
15.37%
-3.10%
-8.42%
-6.13%
4.23%

1.50%
4.54%
7.07%
-1.52%
1.08%
-0.83%
-3.39%
7.87%
3.23%
5.46%
5.72%
9.76%
0.59%
-3.23%
-0.28%
2.83%

US Portfolio US Portfolio US Portfolio US Portfolio Country Port Country Port Country Port Country Port
Small-Value Big-Growth Big-Neutral Big-Value
Australia
Hong Kong
Italy
Japan
2.08%
0.43%
1.79%
2.79%
3.59%
6.23%
2.72%
2.40%
3.08%
1.42%
2.83%
1.94%
3.38%
6.04%
5.74%
0.45%
5.17%
3.14%
3.08%
4.78%
8.65%
1.10%
4.27%
1.94%
0.87%
2.69%
2.16%
1.86%
-1.53%
0.79%
0.67%
-1.88%
2.38%
3.45%
1.58%
0.81%
2.23%
2.71%
3.98%
1.68%
-1.75%
-1.18%
1.26%
1.41%
1.74%
2.44%
1.03%
-0.83%
0.24%
-0.37%
0.05%
1.67%
0.71%
0.73%
-0.20%
-1.10%
-4.00%
-3.12%
-2.71%
-1.37%
-5.49%
-6.27%
-2.14%
-6.28%
1.51%
-0.31%
2.34%
3.44%
9.33%
5.08%
4.15%
2.75%
4.95%
1.57%
1.66%
0.84%
0.43%
1.19%
3.08%
2.27%
-0.65%
0.33%
0.40%
-1.00%
-2.05%
0.69%
1.52%
-1.02%
7.61%
1.26%
3.87%
4.45%
7.49%
5.80%
6.14%
4.34%
-0.32%
-0.65%
1.02%
0.43%
2.47%
1.20%
4.39%
8.91%
3.54%
4.26%
3.88%
2.21%
2.64%
3.30%
1.86%
3.64%
-2.50%
-0.26%
-2.81%
-2.92%
-5.19%
-6.91%
-6.41%
-0.74%
0.39%
-0.23%
1.82%
2.20%
5.35%
2.39%
1.46%
8.99%
-0.92%
-1.63%
0.06%
0.06%
0.95%
-0.99%
1.82%
7.46%
6.12%
4.61%
2.66%
4.22%
2.42%
6.19%
4.62%
1.02%
4.60%
-0.98%
1.97%
2.63%
5.26%
3.70%
0.79%
0.70%
5.61%
3.92%
2.96%
3.26%
-0.10%
-0.39%
-1.79%
-1.93%
-6.39%
-1.33%
-2.95%
-2.33%
-1.44%
3.73%
-4.89%
-2.15%
-1.84%
-1.23%
-2.81%
-0.06%
-3.87%
-3.42%
-0.62%
-2.24%
3.60%
0.81%
4.35%
3.22%
4.90%
3.72%
2.92%
1.62%
-2.28%
-2.95%
-1.78%
-1.40%
0.74%
-3.62%
-1.70%
-1.67%
3.87%
4.04%
2.58%
3.63%
4.35%
2.13%
8.06%
5.29%
9.82%
3.45%
5.23%
5.59%
8.33%
9.70%
7.85%
4.80%
1.39%
1.76%
0.89%
1.60%
6.13%
-0.65%
5.91%
2.41%
3.82%
0.54%
2.28%
2.95%
5.89%
1.41%
5.95%
-2.80%
-0.82%
-0.18%
0.91%
0.54%
1.20%
6.34%
-0.55%
0.67%
-4.34%
-4.91%
-1.67%
-1.55%
0.43%
1.76%
-2.35%
-6.10%
5.21%
1.20%
2.22%
2.99%
-0.18%
0.31%
2.88%
4.50%
0.72%
1.40%
0.81%
1.23%
0.86%
-0.69%
-0.54%
-2.90%
-6.10%
-0.69%
-3.17%
-1.77%
-4.91%
-5.04%
1.35%
-4.96%
0.36%
-1.84%
-0.54%
-1.08%
0.41%
-6.05%
-2.78%
14.24%
0.66%
1.20%
2.44%
1.82%
4.26%
3.16%
1.64%
0.06%
6.06%
1.57%
2.12%
2.74%
0.49%
9.62%
2.02%
1.69%
3.96%
4.28%
4.93%
6.53%
7.91%
2.26%
5.00%
6.73%
4.47%
0.86%
1.69%
2.08%
-0.38%
-0.19%
8.08%
-3.23%
10.80%
5.11%
7.42%
6.00%
8.60%
4.79%
5.09%
4.16%
0.90%
-0.81%
-1.95%
-1.49%
3.26%
5.94%
4.25%
6.14%
6.10%
1.80%
2.25%
3.77%
3.11%
11.32%
-2.38%
10.47%
6.35%
2.33%
1.72%
0.24%
0.27%
6.50%
-0.03%
4.06%
3.41%
1.20%
1.36%
1.32%
3.48%
1.18%
-2.77%
7.86%
10.40%
4.97%
7.11%
8.05%
4.82%
8.64%
10.57%
4.68%
9.17%
7.59%
8.95%
9.74%
8.47%
-0.96%
13.73%
0.62%
0.89%
1.71%
-0.01%
-0.62%
2.98%
-5.08%
-5.59%
-4.36%
-3.46%
-1.03%
-3.22%
-4.22%
-2.38%
-1.04%
1.98%
1.05%
-1.35%
-2.66%
-2.32%
-5.29%
2.78%
1.35%
-1.44%
-3.65%
-3.45%
-6.27%
-4.52%
-4.28%
-1.59%
-6.45%
-3.18%
-2.40%

7.72%
-0.28%
-6.63%
-0.86%
-14.87%
-2.35%
-2.53%
3.93%
10.03%
-0.45%
2.71%
6.87%
8.96%
4.44%
-14.38%
-1.19%
-1.09%
2.16%
6.30%
5.04%
-1.20%
0.40%
6.38%
8.14%
-2.53%
-1.87%
-0.98%
6.26%
2.22%
7.86%
-3.64%
-4.47%
-1.02%
11.44%
0.24%
5.75%
3.32%
-3.02%
-2.55%
-2.84%
-0.52%
5.97%
4.45%
8.66%
-2.74%
-8.12%
0.45%
2.77%
5.40%
2.84%
2.80%
-17.13%
-6.61%
0.32%
-2.57%

5.07%
9.62%
-10.56%
0.25%
-6.01%
-7.35%
-1.37%
-6.92%
3.63%
-2.60%
-0.87%
0.76%
8.25%
3.30%
-8.29%
-6.94%
-1.68%
-1.90%
0.41%
8.91%
-8.17%
-11.61%
3.73%
-0.27%
-10.91%
-2.19%
-6.19%
7.55%
-2.97%
4.93%
-3.39%
-4.27%
8.70%
1.21%
-4.78%
7.82%
4.14%
7.01%
-1.96%
-0.26%
-3.13%
6.80%
-2.56%
1.78%
4.20%
-4.48%
5.66%
8.81%
7.00%
8.23%
7.78%
-14.32%
-0.50%
5.84%
-2.58%

6.42%
6.51%
-10.32%
0.79%
-9.37%
-6.43%
0.13%
-1.38%
5.18%
0.17%
-1.85%
2.93%
5.89%
0.86%
-9.04%
-3.98%
-1.25%
-2.01%
1.81%
5.47%
-1.76%
-0.37%
1.09%
9.10%
-3.08%
0.66%
1.87%
8.94%
3.67%
-5.87%
0.88%
-1.14%
10.66%
-4.48%
-3.80%
1.97%
-2.50%
5.70%
-5.66%
-2.62%
-3.52%
2.66%
-0.90%
8.80%
3.69%
-0.66%
-0.34%
1.83%
5.74%
7.79%
3.95%
-17.71%
-3.04%
1.57%
-2.36%

8.11%
3.65%
-10.21%
4.80%
-12.97%
-9.59%
-0.27%
-5.99%
4.85%
-2.39%
-1.74%
1.30%
10.00%
-3.99%
-7.73%
-6.70%
1.06%
-1.79%
3.78%
5.03%
-1.85%
3.18%
-1.57%
6.50%
0.37%
1.29%
1.43%
7.06%
4.37%
-5.40%
-0.03%
4.10%
11.98%
-6.97%
-3.94%
1.86%
-1.97%
4.84%
-4.78%
-2.16%
-2.72%
-0.86%
-0.23%
8.19%
1.06%
-2.15%
-1.07%
2.74%
3.89%
4.85%
5.62%
-11.19%
-3.91%
2.43%
1.02%

2.54%
5.29%
-5.65%
2.43%
-6.33%
-5.23%
6.20%
-1.19%
4.08%
0.48%
0.23%
1.21%
6.69%
8.38%
-11.53%
2.15%
-4.98%
2.81%
0.88%
10.77%
-10.95%
-5.55%
3.93%
3.98%
1.97%
-5.12%
-5.75%
-0.12%
-4.31%
12.77%
-3.16%
-3.17%
-1.13%
-2.54%
-4.14%
5.59%
6.57%
-2.18%
0.95%
-5.04%
-0.36%
5.42%
-7.62%
9.82%
5.32%
-2.88%
7.17%
-0.01%
6.67%
8.54%
8.56%
-13.18%
-0.15%
-0.12%
-4.55%

6.00%
3.70%
-7.49%
-4.68%
-3.83%
-5.52%
-3.19%
5.57%
5.50%
-3.33%
-1.50%
5.11%
10.53%
3.75%
-13.47%
-6.05%
-1.97%
-3.24%
-0.85%
1.80%
-10.95%
-1.81%
3.04%
11.39%
-1.94%
-4.63%
-4.13%
5.84%
6.61%
8.67%
-10.03%
-9.23%
4.13%
3.06%
-7.53%
9.70%
11.43%
3.62%
-4.62%
0.49%
-2.78%
10.27%
-7.63%
21.88%
12.74%
0.58%
-8.25%
-2.02%
0.07%
32.18%
17.11%
-7.41%
-7.72%
-6.88%
-14.25%

9.71%
9.26%
-13.83%
1.91%
-9.17%
-1.38%
-2.30%
0.51%
6.92%
0.10%
-3.37%
1.18%
3.76%
4.09%
-15.17%
-1.40%
2.06%
-4.83%
-8.59%
5.38%
-6.96%
-10.80%
2.40%
1.69%
1.32%
1.03%
-5.65%
-0.47%
-3.55%
5.68%
2.84%
-6.44%
-7.22%
17.04%
-5.15%
20.44%
3.71%
-2.80%
1.74%
1.86%
-2.40%
-2.11%
-4.15%
-2.34%
3.64%
-1.55%
-4.36%
7.53%
10.98%
6.27%
-5.08%
-13.97%
9.75%
-5.74%
4.96%

3.97%
-6.59%
-4.94%
-1.37%
-5.93%
-5.35%
7.15%
5.45%
6.32%
4.21%
-7.64%
-8.17%
0.30%
0.54%
-7.28%
-3.08%
-8.50%
-5.70%
-0.38%
8.59%
-3.49%
-5.49%
-0.34%
-8.61%
-2.68%
-6.77%
-4.29%
6.36%
-11.26%
6.73%
-7.09%
-8.02%
7.87%
-2.27%
-5.53%
5.08%
7.63%
6.89%
6.77%
2.38%
10.35%
9.62%
-4.41%
4.93%
14.64%
-2.82%
0.73%
3.55%
4.23%
16.74%
-2.05%
-10.72%
-1.02%
0.69%
-4.81%

2.17%
4.74%
7.18%
-0.72%
2.18%
0.40%
-2.30%
7.82%
3.19%
5.47%
6.49%
7.86%
-0.12%
-1.77%
1.21%
3.17%

1.19%
4.59%
7.22%
2.96%
0.99%
4.80%
-3.46%
5.09%
-5.77%
7.75%
4.16%
7.01%
6.73%
-5.50%
0.00%
6.59%

1.58%
5.17%
7.76%
-2.19%
2.93%
3.41%
-3.11%
5.95%
-3.34%
9.03%
4.64%
5.87%
4.45%
-2.59%
0.40%
5.19%

0.40%
7.63%
6.87%
-0.23%
4.18%
3.26%
-2.70%
5.68%
-2.96%
6.40%
2.72%
5.91%
1.67%
-4.40%
2.10%
3.02%

-1.48%
-0.44%
2.56%
6.49%
2.17%
-2.42%
-12.98%
6.43%
-6.83%
-0.55%
4.08%
2.80%
2.97%
0.08%
3.31%
-3.86%

-10.56%
-2.48%
21.69%
-15.50%
1.55%
-2.33%
-28.60%
5.62%
-13.24%
5.97%
4.46%
12.27%
1.44%
-6.39%
0.08%
-2.46%

-3.26%
21.22%
4.71%
11.16%
7.84%
1.70%
-5.46%
14.95%
-2.27%
5.34%
9.27%
-0.36%
1.45%
2.82%
-10.39%
11.58%

-0.85%
-6.79%
0.57%
9.59%
-6.60%
-6.54%
-8.41%
-1.91%
-8.96%
-3.01%
6.74%
13.05%
2.66%
-2.98%
2.15%
-10.87%

Country Port Country Port US Riskfree

Norway
US
US Riskfree
5.39%
1.08%
0.40%
8.90%
2.37%
0.42%
8.84%
3.71%
0.41%
-7.52%
1.95%
0.41%
-3.98%
2.51%
0.42%
4.06%
-0.18%
0.40%
-2.90%
-0.04%
0.40%
-7.52%
-3.10%
0.43%
9.82%
1.30%
0.36%
11.77%
1.91%
0.37%
-0.81%
-0.16%
0.34%
12.09%
4.01%
0.35%
4.59%
0.35%
0.32%
-0.04%
4.04%
0.31%
-7.15%
-2.08%
0.27%
1.80%
1.06%
0.29%
8.38%
-0.59%
0.30%
6.49%
4.33%
0.24%
10.71%
1.15%
0.23%
1.15%
3.79%
0.24%
-3.52%
-2.52%
0.21%
-3.36%
-1.69%
0.21%
12.62%
2.27%
0.16%
-2.12%
-2.66%
0.16%
0.20%
3.52%
0.16%
12.62%
4.82%
0.15%
2.48%
1.78%
0.11%
11.37%
2.06%
0.11%
2.73%
0.27%
0.11%
-1.47%
-3.77%
0.10%
3.24%
2.16%
0.08%
3.60%
1.41%
0.06%
-2.60%
-2.42%
0.08%
-0.09%
-1.07%
0.09%
8.81%
1.55%
0.06%
0.96%
2.31%
0.07%
9.40%
4.55%
0.08%
5.36%
1.66%
0.07%
11.93%
6.03%
0.07%
-0.20%
-0.91%
0.08%
0.80%
2.49%
0.07%
6.38%
2.31%
0.07%
3.91%
1.63%
0.10%
4.95%
6.35%
0.09%
12.87%
8.28%
0.10%
0.54%
1.03%
0.10%
-7.30%
-1.54%
0.09%
-5.62%
-2.34%
0.10%
2.84%
-5.33%
0.11%

Average
Past
Return

Second Pass Second Pass

Second Pass Fama-French
Macro
Static CAPM
3 Factor
3 Factor
Expected
Expected
Expected
Return
Return
Return
1.93%
2.07%
1.70%
2.03%
2.37%
2.11%
1.36%
0.72%
1.55%
0.55%
1.99%
2.01%
2.00%
1.71%
1.77%
3.00%
3.88%
1.41%
0.89%
0.56%
-1.07%
1.28%
1.40%
1.32%
1.31%
1.14%
-0.05%
1.19%
0.75%
0.32%
1.37%
0.94%
1.14%
1.39%
1.91%
1.30%
1.82%
1.99%
1.71%
1.87%
2.20%
2.45%
1.87%
1.76%
2.95%
1.79%
1.73%
1.19%
1.89%
2.87%
2.41%
1.88%
1.57%
1.50%

6.31%
4.43%
-12.05%
0.17%
-8.87%
-1.58%
1.21%
1.41%
8.89%
5.59%
-4.22%
5.13%
5.97%
1.49%
-13.85%
-3.06%
0.13%
-3.44%
-2.47%
7.38%
-8.08%
-2.75%
3.80%
6.60%
-3.56%
-2.83%
-2.29%
6.50%
-1.74%
10.10%
3.89%
-7.38%
1.08%
0.67%
-7.59%
11.34%
4.05%
-4.62%
1.16%
2.88%
4.07%
-1.41%
-2.56%
7.46%
10.39%
-9.16%
11.65%
-5.87%
-7.86%
15.17%
-1.99%
-28.23%
1.39%
-3.36%
-8.49%

6.13%
7.50%
-10.00%
0.80%
-8.11%
-7.02%
-1.05%
-4.96%
4.47%
-2.17%
-1.61%
1.78%
7.87%
2.80%
-9.15%
-5.91%
-1.83%
-1.75%
1.06%
8.39%
-7.03%
-9.93%
3.95%
2.03%
-10.25%
-2.46%
-5.11%
7.64%
-1.71%
5.16%
-3.90%
-5.95%
5.35%
3.17%
-3.98%
8.39%
3.69%
6.20%
-2.28%
-1.00%
-3.06%
5.10%
-2.07%
4.90%
3.79%
-3.81%
3.83%
6.31%
6.20%
7.44%
6.38%
-15.77%
-2.33%
3.20%
-2.58%

0.12%
0.14%
0.14%
0.14%
0.15%
0.13%
0.14%
0.15%
0.13%
0.13%
0.14%
0.15%
0.17%
0.22%
0.28%
0.31%
0.30%
0.28%
0.32%
0.39%
0.44%
0.39%
0.54%
0.50%
0.51%
0.56%
0.51%
0.50%
0.48%
0.40%
0.50%
0.46%
0.47%
0.43%
0.41%
0.44%
0.36%
0.39%
0.39%
0.39%
0.38%
0.40%
0.34%
0.37%
0.43%
0.35%
0.35%
0.38%
0.31%
0.32%
0.46%
0.43%
0.40%
0.41%
0.40%

5.37%
8.73%
3.93%
-7.05%
-0.56%
-6.76%
-3.18%
10.59%
0.60%
1.95%
1.76%
5.39%
-5.15%
2.59%
-4.53%
7.86%

1.09%
5.13%
7.32%
0.45%
1.78%
3.05%
-3.45%
5.84%
-3.63%
7.65%
4.41%
7.16%
4.23%
-4.48%
-0.11%
5.34%

0.43%
0.39%
0.39%
0.43%
0.48%
0.39%
0.42%
0.44%
0.41%
0.43%
0.37%
0.49%
0.43%
0.43%
0.39%
0.45%

Standard
Deviation

0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000

Correlations
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000

Stock
Barrick

Stock
Hanson

Stock
IBM

Stock
Nokia

0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000

Covariances
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000

Stock
Barrick

Stock
Hanson

Stock
IBM

Stock
Nokia

Stock
Telefonos

Stock
YPF

US Portfolio US Portfolio US Portfolio US Portfolio US Portfolio US Portfolio

Small-GrowthSmall-Neutral Small-Value Big-Growth Big-Neutral Big-Value

Stock
Telefonos

Stock
YPF

US Portfolio US Portfolio US Portfolio US Portfolio US Portfolio US Portfolio

Small-GrowthSmall-Neutral Small-Value Big-Growth Big-Neutral Big-Value

Country Port Country Port Country Port Country Port Country Port Country Port
Australia
Hong Kong
Italy
Japan
Norway
US

Country Port Country Port Country Port Country Port Country Port Country Port
Australia
Hong Kong
Italy
Japan
Norway
US

PORTFOLIO OPTIMIZATION
Inputs
Asset Type

Many Risky Assets and a Riskfree As

Asset Type
Stock
US Port
Forecast Expected Ret.

Country Port

3.00%

Average Past Return

Risk Aversion

Static CAPM

Expected Return / Month

Method to
Forecast
Expected
Return

Risky Opportunity Set, Capital All

Indifference Curv

Fama-French 3 Factor
Macro 3 Factor

2.8
Expected
Return/Mon

28
Standard
Deviation

2.50%

2.00%

1.50%

US Riskfree

0.00%

50

0.00%

1.70%

50

0.00%

50

2.11%

50

0.00%

50

1.55%

50

0.00%

50

2.01%

50

0.00%

50

1.77%

50

0.00%

50

Standard Deviation (s)

1.41%

50

0.00%

50

Portfolio Weights of the Opti

and the Optimal Compl

1.00%

0.50%

0.00%
0.00%

5.00%

120%
Correlations
0
0.0%

0.0%

0.0%

0
0.0%

0
0.0%

0
0.0%

100.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

100.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

100.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

100.0%

0.0%

0.0%
10
10

0.0%

0.0%

0.0%

0.0%

100.0%

10

100%
Portfolio Weights

0
100.0%

80%
60%
40%
20%
0%
US Riskfree

10
10
10

10
10
10

10
10
10

10
10

10

Standard Deviations
0

0
One plus
Exp Ret
[1 + E(ri)]

Variance-Covariance Matrix
0

0
0
0
0
0
0

US Riskfree
0
0
0
0
0
0

Outputs
A
B
C
Delta
Gamma
Risky Asst Capital
Optimal
Optimal
Opp Set Allocation Individual Risky
Indifference Complete
Proportion
Curve
Line
Asset (Tangent)
Curve
Portfolio
in Optimal Standard Expected Expected Expected Portfolio
Expected Expected
Risky Port Deviation Ret / Mon Ret / Mon Ret / Mon Weights
Ret / Mon Ret / Mon
US Riskfree
0
0
0
0
0

0.0%
0.0%
0.0%
0.0%
0.0%

0
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opp Set Curve
Opt Risky Port
Cap Alloc Line
Cap Alloc Line
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve

0.0%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
1.00%
1.10%
1.20%
1.30%
1.40%
1.50%
1.60%
1.70%
1.80%
1.90%
2.00%
2.10%
2.20%
2.30%
2.40%
2.50%
2.60%
2.70%
2.80%
2.90%
3.00%
0.0%
1000.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%

Indiffer Curve
Indiffer Curve
Indiffer Curve
Indiffer Curve
Opt Comp Port
Constant Utility Value

12.0%
13.0%
14.0%
15.0%

and a Riskfree Asset

ortunity Set, Capital Allocation Line, and

Indifference Curve

10.00%

15.00%

Standard Deviation (s)

Portfolio Weights of the Optimal Risky Portfolio
and the Optimal Complete Portfolio

Optimal
Risky
0
0 Portfolio
0
Optimal Complete Portfolio

Ones

Optimal
Complete
Portfolio
Weights