The overall risky portfolio for the investor consists of a fraction w invested in the active portfolio and the remainder (i.e. ) invested in the market portfolio.
That is because Fidelity Monitor assembled riskier portfolios than did Fidelity Insight.
As interest rates rose, he said, investors worried about the credit quality of bonds in riskier portfolios, especially those backed by mortgages.
The first part is the determination of the "optimum risky portfolio".
That huge and risky portfolio was supported by $6.2 billion in borrowing through bond issues, $5.3 billion in bank loans and $20.6 billion in short-term commercial paper.
"We don't have a very risky portfolio," he said.
(R - I) is a measure of the risk premium, or the reward for holding risky portfolio instead of risk-free portfolio.
Social insurance programs might well benefit from investing their resources in risky portfolios in order to mobilize additional risk-bearing capacity.
Newly developed investment theories offered further incentive, by showing that riskier investments did not necessarily add up to a riskier portfolio, but that done right, could even cut risk.
It is tangent to the hyperbola at the pure risky portfolio with the highest Sharpe ratio.