Producing the tangency portfolio as a corner portfolio

Abstract

One-fund theorem states that an efficient portfolio in a Mean-Variance (M-V) portfolio selection problem for a set of some risky assets and a riskless asset can be represented by a combination of a unique risky fund (tangency portfolio) and the riskless asset. In this paper, we introduce a method for which the tangency portfolio can be produced as a corner portfolio. So, the tangency portfolio can be computed easily and fast by any algorithm designed for tracing out the M-V efficient frontier via computing the corner portfolios. Moreover, we show that how this method can be used for tracing out the M-V efficient frontier when problem contains a riskless asset in which the borrowing is not allowed. © EDP Sciences, ROADEF, SMAI 2013.