Risk-Return Basics

We provide an overview of the risk-return image of feasible risky portfolios, and how the introduction of a riskless asset gives rise to a tangency portfolio, to the Capital Market Line and to the Security Market Line.

We take a mathematical point of view, where risk is simply (the square root of) a positive semidefinite quadratic form and where return is a linear form. So a proper general understanding of quadratic and linear forms yields all the main results.