PAG. 398 - SAA
Why does it apply the indifference curves directly to the efficient frontier instead of finding an optimal combination with a risk free asset?
I’d imagine that they do it simply to illustrate the idea of (utility) indifference curves, and there’s more scope for illustrating differences between low risk aversion and high risk aversion when you use an efficient frontier that doesn’t include the risk-free asset. Their motivation _ certainly isn’t _ that the theory doesn’t apply when the risk-free asset is included: it does.
Yes I think so…! Thanks!
My pleasure.