Marcus Davidsson
Modern Portfolio Theory (MPT) is an investment strategy that seeks to optimise the risk-return trade-off in a diversified portfolio. The theory assumes that investors are risk-averse and that, for a given level of expected return, they will always prefer the less risky portfolio. It is based...
An investment theory is the research and analysis of the factors associated with making an investment. The basics of creating an...
Why is this portfolio usually not the portfolio chosen by FIs to optimize the return-risk trade-off? Portfolio: The portfolio refers to the combination of the investment by the individual or the financial institution like shares, bonds,...
What is the classical theory in business? What are examples of Theory X and Theory Y? What is the concept of the ladder of inference? What is social marginality theory? What does convergence theory predict? What is modern portfolio theory and what do critics say about it?
What is the portfolio consisting of the underlying asset and short position on the strike price worth at the expiration date? Well, if you had invested in the asset at thespot priceof $100 and it ended at $110, and you had to pay back the strike price at maturity from the amount you...
Put simply each investment in a minimum variance portfolio is risky if traded individually, but when traded in the portfolio the risk is hedged. The term originates from the Markowitz Portfolio Theory, which suggests that volatility can be used to replace risk and, therefore, less volatility vari...
Understanding these limitations is essential for investors and analysts to make informed decisions and interpret model outputs appropriately. Additionally, ongoing research and advancements in option pricing theory aim to address limitations and enhance the accuracy and applicability of these models in real-...
The post-modern portfolio theory (PMPT) is a portfolio optimization methodology that uses thedownside riskof returns instead of the mean variance of investment returns used by themodern portfolio theory(MPT). Both theories describe how risky assets should be valued, and how rational investors should...
Understanding the Modern Portfolio Theory (MPT) MPT argues that any given investment'srisk and return characteristicsshould not be viewed alone but should be evaluated by how it affects the overall portfolio's risk and return. That is, an investor can construct a portfolio of multiple assets that...