Modern Portfolio Theory and Markowitz Efficient Frontier

Literature Review In this chapter we will explore modern portfolio theory and theories related to Marcoits' effective frontier. It also shows the understanding and role of alternative investments and emotional assets in the financial industry. In this chapter, we will analyze the importance of alternative investment and emotional assets for portfolio using existing scientific literature. 1 Introduction In portfolio optimization, investors need to keep in mind that diversification and diversification are the key to balancing risks and returns.

Modern Portfolio Theory (MPT) is a hypothesis of investment theory announced by Harry Markowitz in 1952. Since then, Marcoits' theory is one of the most influential financial forces for academia and practitioners. Markowitz argues that risk averse investors can build a portfolio to maximize return at a specific risk level. With the MPT application, investors can create optimal asset portfolios for specific levels of risk. Depending on risk tolerance, you need to invest in an asset portfolio that maximizes returns. This set of options for each level of risk creates an effective frontier and investors should never choose a portfolio that does not belong to that boundary. In addition, MPT quantifies the merits of asset diversification by reducing risk.

Modern portfolio theory (MPT) was one of the most important contributions to financial economics, developed by Harry Markowitz in 1952. Volatility Markowitz designed the concept of "effective boundary" to compare the expected yield and volatility (including various amounts of assets) of various asset classes and various asset portfolios. Each portfolio is plotted on the chart, portfolio risk (standard deviation) on the horizontal axis, and the expected rate of return on the vertical axis.