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  2. Markowitz model - Wikipedia

    en.wikipedia.org/wiki/Markowitz_model

    The Capital Market Line says that the return from a portfolio is the risk-free rate plus risk premium. Risk premium is the product of the market price of risk and the quantity of risk, and the risk is the standard deviation of the portfolio. The CML equation is : R P = I RF + (R M – I RF)σ P /σ M. where, R P = expected return of portfolio

  3. Modern portfolio theory - Wikipedia

    en.wikipedia.org/wiki/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 ...

  4. Post-modern portfolio theory - Wikipedia

    en.wikipedia.org/wiki/Post-modern_portfolio_theory

    Volatility skewness is the second portfolio-analysis statistic introduced by Rom and Ferguson under the PMPT rubric. It measures the ratio of a distribution's percentage of total variance from returns above the mean, to the percentage of the distribution's total variance from returns below the mean.

  5. Monte Carlo methods in finance - Wikipedia

    en.wikipedia.org/wiki/Monte_Carlo_methods_in_finance

    Remember that an estimator for the price of a derivative is a random variable, and in the framework of a risk-management activity, uncertainty on the price of a portfolio of derivatives and/or on its risks can lead to suboptimal risk-management decisions. This state of affairs can be mitigated by variance reduction techniques.

  6. Roll's critique - Wikipedia

    en.wikipedia.org/wiki/Roll's_critique

    The market return is defined as the wealth-weighted sum of all investment returns in the economy. Roll's critique makes two statements regarding the market portfolio: 1. Mean-variance tautology: Any mean-variance efficient portfolio satisfies the CAPM equation exactly:

  7. Multiple factor models - Wikipedia

    en.wikipedia.org/wiki/Multiple_factor_models

    In addition the global model applied to a single country portfolio would often be at odds with the local market model. Torre resolved these difficulties by introducing a two-stage factor analysis. The first stage consists of fitting a series of local factor models of the familiar form resulting in a set of factor returns f(i,j,t) where f(i,j,t ...

  8. Two-moment decision model - Wikipedia

    en.wikipedia.org/wiki/Two-moment_decision_model

    [11] [12] Thus portfolio optimization can be implemented using a two-moment decision model. Example 3: Suppose that a price-taking, risk-averse firm must commit to producing a quantity of output q before observing the market realization p of the product's price. [13] Its decision problem is to choose q so as to maximize the expected utility of ...

  9. Model selection - Wikipedia

    en.wikipedia.org/wiki/Model_selection

    Model selection is the task of selecting a model from among various candidates on the basis of performance criterion to choose the best one. [1] In the context of machine learning and more generally statistical analysis , this may be the selection of a statistical model from a set of candidate models, given data.