What does the Markowitz mean-variance portfolio model aim to minimize?

The Markowitz mean-variance portfolio model, developed by Harry Markowitz, aims to minimize risk for a given level of expected return. This model introduces the concept of efficient frontier, where a portfolio is considered efficient if it offers the maximum expected return for a defined level of risk or, conversely, the minimum risk for a given level of expected return.

In the context of this model, "risk" is typically quantified using variance or standard deviation of portfolio returns, representing the volatility of returns relative to their mean. By optimizing the allocation of assets within a portfolio, investors can achieve their desired return while keeping risk at a minimum.

This approach is significant because it allows investors to make informed decisions about how to distribute their investments in different assets, balancing the trade-off between risk and return in pursuit of their financial goals. Thus, the emphasis on minimizing risk for a specified return aligns perfectly with the core principle of the mean-variance optimization framework.