Modern Portfolio Theory

Dr. Mark Markowitz is the founder of the portfolio choice and he received the 1990 Nobel Prize in his research in financial economics. Dr Harry Markowitz invested in portfolio selection and announced it in 1959. That is the basic stage of modern portfolio theory. Harry Markowitz and his portfolio selection, the process of selecting a portfolio is divided into two levels. The first level begins with examining and proofing the future progress of available assets.

Under the general name of contemporary portfolio theory announced entitled "Portfolio Selection" by Dr. Harry Markowitz in 1952, science has developed with focus on market and financial risk management. In modern portfolio theory, the variance (or standard deviation) of the portfolio is used as the risk definition. Credit risk, also called default risk, is the risk associated with the default of the borrower (not paid as promised). Investor loss includes loss of principal and interest, a decrease in cash flow, and an increase in collection expenses. Investors can also undertake credit risk by using leverage directly or indirectly. For example, investors can purchase investments using margins. Alternatively, the investment can be used directly or indirectly, or it can depend on buy-backs, forward commitments or derivatives.

Today, we use the framework of "modern portfolio theory" to think about investment risk. The idea is that the risks themselves can not be considered carefully or frivolously. Instead, it is important how to adapt the risk to the entire portfolio. By controlling the risks of our remaining life, we can occasionally invest high risk, high return. Investors purchase stocks, bonds, houses, wine collections, and forests. Investment itself is not prudent, there is the possibility of diversifying the entire portfolio. This way of thinking allows ordinary investors to participate in a wide range of financial activities - it allows climbers and other adventurers to be targeted in the areas of Daredevil and Madman