Suppose a risk-averse investor can build a portfolio from among n assets with independently distributed returns, all of which have identical means and identical variances . What will be the composition of the investor’s optimal portfolio? 

a) Define the optimization problem that needs to be solved. 

b) Form the Lagrangian.

 c) Solve for the optimal portfolio. Hint. Verify that the portfolio expected return is independent of the portfolio structure. What will be the composition of the investor’s optimal portfolio? Hint. Verify that the portfolio expected return is independent of the portfolio structure

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If there are no bounds on portfolio holdings one can use the gradient method to d... View the full answer