Chapter 9: Using SAS for Portfolio Optimizations
Modern Portfolio Theory (MPT) and Portfolio Optimization
Modern portfolio theory argues that given a universe of risky assets with a known probability distribution of expected returns over some holding period, rational utility-maximizing investors who are risk-averse will construct portfolios of risk assets using an optimized trade-off between the risk of the portfolio and the expected return to be earned by holding the portfolio. To put it more broadly, the theory states that rational risk-averse investors will seek the best risk-return trade-off for every level of risk or expected returns. Under this theory, the investor’s portfolio decision is based solely on two factors, the expected return ...
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