Frontier Point

Problem

Compute the volatility of a portfolio on the mean-variance frontier.

For target return mu_p and two assets with means mu1, mu2, volatilities sigma1, sigma2, and correlation rho, set w1 = (mu_p - mu2) / (mu1 - mu2) and return the standard deviation of the resulting portfolio. If the means are equal, return sigma1.

Hint

Weights follow from the target return; then apply the two-asset variance formula.

Test cases

case 1

in: [0.08,0.1,0.05,0.2,0.1,0.3]

expected: 0.13740451229854134

case 2

in: [0.05,0.1,0.05,0.2,0.1,0.3]

expected: 0.1

case 3

in: [0.15,0.1,0.05,0.2,0.1,0]

expected: 0.412310562561766

Starter codePython

def frontier_point(mu_p, mu1, mu2, sigma1, sigma2, rho):
    # Your code here
    pass

3 test cases · run your code against them in the editor