Analytical forms of efficient frontier of Euro Stoxx 50 and BUX 5 portfolios

Abstract

In the hand of supervisory bodies short selling bans are important controlling tools. In this case we must invoke non-negativity assumptions, which decreases the generality of the model and computationally means difficulties. For example, the analytical form of the mean-variance efficient frontier has been known for long time, on the other hand, we have never seen the analytical form of the efficient frontier of portfolios under short selling ban. This study offers an algorithm with computer code to identify the analytical form of efficient frontier for the case when non-negativity assumptions are invoked. Knowing the analytical forms facilitates the interpretations of novel characteristics over the time.