Which of the following is a criticism of Mean-Variance Optimization?

Mean-Variance Optimization (MVO) is designed to help investors construct a portfolio that maximizes expected return for a given level of risk or minimizes risk for a given level of expected return. One of the well-known criticisms of this approach is that the optimized allocations are highly sensitive to small changes in the input parameters, such as expected returns, variances, and covariances of asset returns.

This sensitivity implies that if even slight adjustments are made to these inputs—whether due to estimation errors or fluctuating market conditions—the resulting optimized portfolio weights can change significantly. This can lead to instability in the portfolio allocation, making it unreliable and potentially resulting in allocations that do not reflect the true investor's preferences or market realities. This characteristic raises concerns about the robustness of the Model, as a portfolio that is constructed to be optimal under certain inputs might not remain optimal as these inputs evolve.

The other criticisms mentioned do not accurately align with MVO's structure and purpose. For instance, while MVO does consider risk and return, it operates under the assumption that investors can express their utility through the portfolio's risk-return profile, therefore it doesn't neglect risk tolerance per se. Furthermore, excessive diversification can indeed be a consideration in portfolio construction, but MVO itself