Lecture

Mean-Variance Portfolio Theory

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In course

FIN-405: Investments

The course covers a wide range of topics in investment analysis ...

Description

This lecture covers the concepts of mean-variance efficient frontier, utility theory, and factor models in investment management. It explains the estimation of means, variances, and covariances, as well as the construction of optimal portfolios. The instructor discusses the Capital Asset Pricing Model (CAPM), two-fund separation theorem, and the Arbitrage Pricing Theory (APT). The lecture also delves into factor models, anomalies in fund performance, and the efficiency of markets. Various risk factors, such as size, value, and momentum, are analyzed, along with the implications of volatility on expected returns.

Instructor

Pierre Collin-Dufresne

Official source

Ontological neighbourhood

Economics

Microeconomics: Financial economics

Related concepts (32)

PDF

Portable Document Format (PDF), standardized as ISO 32000, is a developed by Adobe in 1992 to present documents, including text formatting and images, in a manner independent of application software, hardware, and operating systems. Based on the PostScript language, each PDF file encapsulates a complete description of a fixed-layout flat document, including the text, fonts, vector graphics, and other information needed to display it. PDF has its roots in "The Camelot Project" initiated by Adobe co-founder John Warnock in 1991.

Modern portfolio theory

Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return.

Adobe Acrobat

Adobe Acrobat is a family of application software and Web services developed by Adobe Inc. to view, create, manipulate, print and manage Portable Document Format (PDF) files. The family comprises Acrobat Reader (formerly Reader), Acrobat (formerly Exchange) and Acrobat.com. The basic Acrobat Reader, available for several desktop and mobile platforms, is freeware; it supports viewing, printing, scaling or resizing and annotating of PDF files. Additional, "Premium", services are available on paid subscription.

Volatility (finance)

In finance, volatility (usually denoted by σ) is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option).

Volatility smile

Volatility smiles are implied volatility patterns that arise in pricing financial options. It is a parameter (implied volatility) that is needed to be modified for the Black–Scholes formula to fit market prices. In particular for a given expiration, options whose strike price differs substantially from the underlying asset's price command higher prices (and thus implied volatilities) than what is suggested by standard option pricing models. These options are said to be either deep in-the-money or out-of-the-money.

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PDF

Modern portfolio theory

Adobe Acrobat

Volatility (finance)

Volatility smile