Book description
A through guide covering Modern Portfolio Theory as well as the recent developments surrounding it
Modern portfolio theory (MPT), which originated with Harry Markowitz's seminal paper "Portfolio Selection" in 1952, has stood the test of time and continues to be the intellectual foundation for realworld portfolio management. This book presents a comprehensive picture of MPT in a manner that can be effectively used by financial practitioners and understood by students.
Modern Portfolio Theory provides a summary of the important findings from all of the financial research done since MPT was created and presents all the MPT formulas and models using one consistent set of mathematical symbols. Opening with an informative introduction to the concepts of probability and utility theory, it quickly moves on to discuss Markowitz's seminal work on the topic with a thorough explanation of the underlying mathematics.
Analyzes portfolios of all sizes and types, shows how the advanced findings and formulas are derived, and offers a concise and comprehensive review of MPT literature
Addresses logical extensions to Markowitz's work, including the Capital Asset Pricing Model, Arbitrage Pricing Theory, portfolio ranking models, and performance attribution
Considers stock market developments like decimalization, high frequency trading, and algorithmic trading, and reveals how they align with MPT
Companion Website contains Excel spreadsheets that allow you to compute and graph Markowitz efficient frontiers with riskless and risky assets
If you want to gain a complete understanding of modern portfolio theory this is the book you need to read.
Table of contents
 Cover
 Series Page
 Title Page
 Copyright
 Dedication
 Preface
 Chapter 1: Introduction

Part One: Probability Foundations

Chapter 2: Assessing Risk
 2.1 Mathematical Expectation
 2.2 What Is Risk?
 2.3 Expected Return
 2.4 Risk of a Security
 2.5 Covariance of Returns
 2.6 Correlation of Returns
 2.7 Using Historical Returns
 2.8 Data Input Requirements
 2.9 Portfolio Weights
 2.10 A Portfolio's Expected Return
 2.11 Portfolio Risk
 2.12 Summary of Notations and Formulas
 Notes
 Chapter 3: Risk and Diversification

Chapter 2: Assessing Risk

Part Two: Utility Foundations

Chapter 4: SinglePeriod Utility Analysis
 4.1 Basic Utility Axioms
 4.2 The Utility of Wealth Function
 4.3 Utility of Wealth and Returns
 4.4 Expected Utility of Returns
 4.5 Risk Attitudes
 4.6 Absolute Risk Aversion
 4.7 Relative Risk Aversion
 4.8 Measuring Risk Aversion
 4.9 Portfolio Analysis
 4.10 Indifference Curves
 4.11 Summary and Conclusions
 Appendix: Risk Aversion and Indifference Curves
 Notes

Chapter 4: SinglePeriod Utility Analysis

Part Three: MeanVariance Portfolio Analysis

Chapter 5: Graphical Portfolio Analysis
 5.1 Delineating Efficient Portfolios
 5.2 Portfolio Analysis Inputs
 5.3 TwoAsset Isomean Lines
 5.5 ThreeAsset Portfolio Analysis
 5.6 Legitimate Portfolios
 5.7 “Unusual” Graphical Solutions Don't Exist
 5.8 Representing Constraints Graphically
 5.9 The Interior Decorator Fallacy
 5.10 Summary
 Appendix: Quadratic Equations
 Notes
 Chapter 6: Efficient Portfolios
 Chapter 7: Advanced Mathematical Portfolio Analysis
 Chapter 8: Index Models and ReturnGenerating Process

Chapter 5: Graphical Portfolio Analysis
 Part Four: NonMeanVariance Portfolios
 Part Five: Asset Pricing Models

Part Six: Implementing the Theory

Chapter 17: Portfolio Construction and Selection
 17.1 Efficient Markets
 17.2 Using Portfolio Theories to Construct and Select Portfolios
 17.3 Security Analysis
 17.4 Market Timing
 17.5 Diversification
 17.6 Constructing an Active Portfolio
 17.7 Portfolio Revision
 17.8 Summary and Conclusions
 Appendix: Proofs for Some Ratios from Active Portfolios
 Notes

Chapter 18: Portfolio Performance Evaluation
 18.1 Mutual Fund Returns
 18.2 Portfolio Performance Analysis in the Good Old Days
 18.3 Capital Market Theory Assumptions
 18.4 SingleParameter Portfolio Performance Measures
 18.5 Market Timing
 18.6 Comparing SingleParameter Portfolio Performance Measures
 18.7 The Index of Total Portfolio Risk (ITPR) and the Portfolio Beta
 18.8 Measurement Problems
 18.9 Do Winners or Losers Repeat?
 18.10 Summary about Investment Performance Evaluation
 Appendix: Sharpe Ratio of an Active Portfolio
 Notes
 Chapter 19: Performance Attribution

Chapter 20: Stock Market Developments
 20.1 Recent NYSE Consolidations
 20.2 International Securities Exchange (ISE)
 20.3 Nasdaq
 20.4 Downward Pressures on Transactions Costs
 20.5 The Venerable Limit Order
 20.6 Market Microstructure
 20.7 HighFrequency Trading
 20.8 Alternative Trading Systems (ATSs)
 20.9 Algorithmic Trading
 20.10 Symbiotic Stock Market Developments
 20.11 Detrimental Stock Market Developments
 20.12 Summary and Conclusions
 Notes

Chapter 17: Portfolio Construction and Selection
 Mathematical Appendixes
 Bibliography
 About the Authors
 Author Index
 Subject Index
Product information
 Title: Modern Portfolio Theory: Foundations, Analysis, and New Developments, + Website
 Author(s):
 Release date: January 2013
 Publisher(s): Wiley
 ISBN: 9781118370520
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