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Efficient-Portfolios Risk-Free Asset

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  • Bruce C. Dieffenbach

    (Independent author)

Abstract

We solve an efficiency problem to determine the cost/mean/variance efficient portfolios for asset markets having a risk-free asset. The portfolio-choice separation theorem describes the efficient portfolios: invest a nonnegative amount in a particular risky portfolio and an arbitrary positive or negative amount in the risk-free asset. The calculations for the Sharpe ratio—the maximum ratio of mean to standard deviation—confirm Hansen–Jagannathan duality (Tobin J (1958 Feb) Liquidity preference as behavior towards risk. Rev Econ Stud XXV(2):65–86).

Suggested Citation

  • Bruce C. Dieffenbach, 2026. "Efficient-Portfolios Risk-Free Asset," Contributions to Economics,, Springer.
    • Handle: RePEc:spr:conchp:978-3-032-21396-9_63
    DOI: 10.1007/978-3-032-21396-9_63
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