Mean-Variance Optimization: Modern Portfolio Theory
- Topics:
- Commercial Lending
- Tags:
- Efficient Solutions,
- Finance,
- Investment,
- Mean-Variance Optimization,
- Optimization,
- Portfolio,
- Theory
- Source:
- Efficient Solutions
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Overview: This article introduces the concepts of Mean-Variance Optimization (MVO) and Modern Portfolio Theory (MPT) in both single and multi-period contexts. It is also intended to help one decide which of the two MVO products, VisualMvo or MvoPlus, should one consider for investments. The fundamental goal of portfolio theory is to optimally allocate investments between different assets. Mean variance optimization (MVO) is a quantitative tool, which will allow making this allocation by considering the trade-off between risk and return. The above discussion does not mean to imply that the Markowitz algorithm is incorrect, but simply to point out the dangers of using historical data as inputs to a single period optimization strategy. If one make own estimates of the MVO inputs, based on own beliefs about the upcoming period, single period MVO can be an entirely appropriate means of balancing the risk and return in your portfolio.
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Format: HTML | Date: Jan 2003 | Pages: 1
