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If I were to provide you with 50 years of monthly returns on the S&P500 and on the Barclays Aggregate Bond Index, how would you

  1. If I were to provide you with 50 years of monthly returns on the S&P500 and on the Barclays Aggregate Bond Index, how would you go about calculating the efficient frontier of investment opportunities? By that I mean, determine
    1. What variables you need to calculate from the return data?
    2. What optimization problem would you need to solve, i.e., what are you going to maximize or minimize?
    3. What restrictions would you need to place on the optimization problem?
    4. How would you determine the starting point of the efficient frontier?

If I asked you to determine the optimal portfolio for a client, what information would you need? Once that information is provided, what optimization problem would you solve to identify the optimal portfolio (what are you going to maximize or minimize)? What constraints would you place on this problem?

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