what is the opportunity set of risky assets?
The optimal CAL
The optimal CAL will be that which has a point of tangency with the opportunity set of risky assets; and,
Indeed, this tangency point represents the optimal risky portfolio, P, to mix with the riskless asset
Markowitz Portfolio Selection
risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward.
it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk.
The first step in this process, known as the Markowitz Portfolio Selection Model, is
determine the risk-return opportunities on offer
summarised by the minimum variance frontier of risky assets
efficient frontier shows
set of portfolios that maximise expected return for each level of portfolio risk
rational investors will choose a portfolio on the efficient frontier