Efficient Portfolio Frontier explained: Merton matrix model (Excel)

[@NEDLeducation]

You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7 Please consider supporting NEDL on Patreon: www.patreon.com/NEDLeducation

[@BasiqLi]

Wow ...! So elegant approach well explained. I (and all comments) totally agree: NEDL is "the best platform around for distance learning in business, finance, economics and much much more"

[@amies5034]

Thanks to you, my finance assessment is now clear. Gone are the dark clouds that had me blind. I will now enjoy the bright sunshining day. Oh and the google drive files are SLAY!!!! Thank you a million times!

[@qiguosun129]

Excellent explanation for the Merton matrix model

[@joeaoun6321]

This was an amazing video and your explanations made this complicated area so much more understandable. Thank you also for providing the spreadsheet and resource material.

[@NEDLeducation]

Hi Joe, and thanks for such feedback, stay tuned for more videos in investment management!

[@jasonvalerio2822]

Easily worth a like and a subscription. I've never been so excited about learning finance as I am now thanks to these very educational videos.

[@NEDLeducation]

Hi Jason, and thanks for the kind words. Stay tuned for more content on portfolio management!

[@owaisabbasi6398]

THank you so much, im from Pakistan, youre a good teacher

[@depa666]

Congratz on the video! Very good and well explained!

[@m.mizanurrahman2763]

Excellent!

[@tonxnot164]

thanks for the great video. a good carry-on video would be plotting indifference curve, & CML.

[@NEDLeducation]

Hi, and happy you liked the video! Will definitely investigate these concepts when I return back to portfolio theory tutorials.

[@KhoaTran-le1ot]

Very cool and helpful ♥️

[@bentansley1720]

This is fantastic, but how would it work to include lower and upper limits for each stock?

[@eddyllano6925]

Great video! Could you also use the historical annual returns of the stocks rather than the CAPM expected returns to calculate the r vector and subsequently the minimum variance portfolio?

[@NEDLeducation]

Hi Eddy, and glad you liked the video! Actually, the return vector does not affect the calculations of the minimum variance portfolio, so MVP stays the same regardless of expected returns! If you would like to change expected returns for some other purposes though, it is very easy - just substitute the cells for historical annual return calculations! Hope it helps.

[@samalphonse869]

Excellent Video! Thank you for taking the time to walk us through the steps so diligently and patiently. I have tried to download the spreadsheet but I keep getting a message that I have no permission to do so. I am under the impression that the spreadsheet is available for free. Am I wrong?

[@NEDLeducation]

Hi Sam, glad you liked the video! Yes, the spreadsheets are completely free, and there shouldn’t be a problem with downloading it. Could you please drop me an email to [e-mail]? I’ll send you the spreadsheet.

[@kyrylyanovych2513]

Hello!!! Thank you for your videos! It is treasure about investment! May I ask to make video with Lognormal distribution?

[@NEDLeducation]

Hi and thanks so much for the feedback, glad the videos helped! As for your suggestion, a lognormal distribution in case of stock return modelling would be equivalent to fitting a regular normal distribution onto log-returns instead of simple holding period returns. But I might record a short video on that sometime in the future. Hope it helps!

[@kyrylyanovych2513]

NEDL thank you so much!

[@Mdigi1982]

Hello -- wouldn't dividends, if paid, have to be included in the return and var-cov analysis?

[@NEDLeducation]

Hi, and thanks for the excellent question! You can take them into account by using total return indices (adjusted closes) instead of price indices (simple closes). This is what I do in most of the videos but rarely say this explicitly.

[@Mdigi1982]

@@NEDLeducation Thank you

[@varadtiwari351]

Hi, can you please explain (or direct me to some other source) the implication of each of the greeks i.e. Alpha, Beta, Delta, Gamma, Lambda and Mu. What characteristics each of them describe regarding the model mathematically. It would be of great help !Thanks!

[@NEDLeducation]

Hi Varad, and thanks for the question! The greeks here are different to "the greeks" you might associate with option valuation. Long story short, alpha, beta, and gamma represent the risk-return properties of the investable universe, and delta is the scaling factor of the risk-return function. Lambda and mu are normalised weights of the minimum variance and tangency portfolio that can be combined to achieve an optimal portfolio with a given target return. Hope it helps!

[@Goragoch]

Can you help to create a video teaching how to create Efficient Portfolio Frontier using Post Moder Portfolio Theory?

[@NEDLeducation]

Hi, and thanks for the suggestion! Will definitely do some videos on PMPT at some point in the future!