Thomas J. Brennan

Impossible Frontiers Calculator

The java applet below calculates which points on the efficient frontier for a specified set of assets are "impossible". Impossibility occurs when at least one asset weight is negative, a situation which cannot occur in the traditional CAPM equilibrium. The ideas underlying this applet are based upon the work of Thomas J. Brennan and Andrew W. Lo in Impossible Frontiers.

You may vary the risk, return, and correlation parameters for the assets in the upper left panel. The lower left panel displays a summary of the results. The two panels on the right provide a graphic display of which portions of the efficient frontier are impossible and the size of the short positions at the impossible points.