## capital asset pricing model

Overview page. Subjects: Economics.

(CAPM)

A model of equilibrium in financial markets that generates very precise predictions about the structure of returns on risky assets. The CAPM assumes the infinite...

## efficient diversification

Overview page. Subjects: Economics.

A key tenet of modern portfolio theory that when creating a portfolio, the holder will either seek to maximize returns for a given risk, or minimize risk for a given ...

## efficient frontier

Overview page. Subjects: Economics.

Those portfolios in a mean-variance analysis, as developed by the Markowitz portfolio model, which provide the minimum risk for a given level of return (cf. efficient portfolios). See also...

## mean-variance analysis

Overview page. Subjects: Economics.

Evaluating uncertain investments in terms of their expected return and variance of outcomes (cf. volatility). See also geometric Brownian motion; Markowitz portfolio model.

## modern portfolio theory

Overview page. Subjects: Economics.

(MPT).

A theory which demonstrates an optimal or equilibrium relationship between risk and return for a portfolio of assets under idealized conditions. It considers that the risk...

## portfolio optimization

Overview page. Subjects: Economics.

The process of choosing securities in order to achieve an aim specified by the investor. This is typically to maximize the outcome in terms of yield, coupon, duration, convexity, and ...

null...## portfolio theory

Overview page. Subjects: Financial Institutions and Services.

The theory developed by H. M. Markowitz (1927– ) that rational investors are averse to taking increased risk unless they are compensated by an adequate increase in expected return. The...

## variance

Overview page. Subjects: Science and Mathematics — Social Sciences.

When all values in a population are expressed as plus and minus deviations from the population mean, the variance is the mean of the squared deviations.

## variance-covariance matrix

Overview page. Subjects: Economics.

A matrix having as elements the variances and covariances of the returns on assets, the variances comprising the main diagonal running from top left to bottom right of the matrix. It is...