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TL;DR

Mean-Variance Portfolio Optimization: A canonical quantitative trading interview question at intermediate difficulty. Commonly asked at Two Sigma, Citadel, DE Shaw, AQR.

By Valenke Exam Prep Team·Last updated 2026-06-01
intermediateLinear Algebra & Optimization

Mean-Variance Portfolio Optimization

Asked at: Two Sigma, Citadel, DE Shaw, AQR

Problem
Given nn assets with expected return vector μ\mu and covariance matrix Σ\Sigma, find the portfolio weights ww that minimize variance wTΣww^T \Sigma w subject to wTμ=rw^T \mu = r (target return) and wT1=1w^T \mathbf{1} = 1 (fully invested). Derive the solution using Lagrange multipliers.

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