Efficient Frontier Variable Bound Example

In Tutorial 2 — Portfolio Allocation Model , the investor wants to impose a condition that limits the standard deviation of the total return. Because the standard deviation is a forecast statistic and not a decision variable, this restriction is a requirement.

However, if the investor wants to see if a small increase in the requirement could create a sharp increase in the investment return, the investor can set this as a requirement with a variable upper bound (since this limits the maximum standard deviation). The investor can define this upper bound with a lower limit of $8,000 and an upper limit of $10,000. For an example of this technique, see Portfolio Revisited EF.xls.