Markowitz Model Assumptions
Investors consider each investment alternative as being represented by a probability distribution of expected returns over some holding period.
Investors maximize one-period expected utility, and their utility curves demonstrate diminishing marginal utility of wealth.
Investors estimate the risk of the portfolio on the basis of the variability of expected returns.
Investors base decisions solely on expected return and risk, so their utility curves are a function of expected return and the expected variance (or standard deviation) of returns only.
For a given risk level, investors prefer higher returns to lower returns. Similarly, for a given level of expected return, investors prefer less risk to more risk.