  Classical mean-variance portfolio theory tells us how to construct a
portfolio of assets which has the greatest expected return for a given level of
return volatility. Utility theory then allows an investor to choose the point
along this efficient frontier which optimally balances her desire for excess
expected return against her reluctance to bear risk. The means and covariances
of the distributions of future asset returns are assumed to be known, so the
only source of uncertainty is the stochastic piece of the price evolution.
  In the real world, we have another source of uncertainty - we estimate but
don't know with certainty the means and covariances of future asset returns.
This note explains how to construct mean-variance optimal portfolios of assets
whose future returns have uncertain means and covariances. The result is simple
in form, intuitive, and can easily be incorporated in an optimizer.
