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Mean-Variance Portfolio Analysis: The Markowitz Model

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Part of the book series: Springer Texts in Business and Economics ((STBE))

Abstract

The chapter describes the Markowitz model, a cornerstone of portfolio theory, and examines the expected return and the variance of the return on a portfolio in the context of this model. The reader will learn how to apply the Markowitz approach to portfolio selection and about the trade-off between risk and return. The chapter considers the role of an investor’s risk tolerance and analyses the notion of an efficient portfolio. It provides a thorough discussion of the Markowitz optimization problem and of the underlying basic assumptions.

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Notes

  1. 1.

    Markowitz, H., Portfolio Selection, Journal of Finance 7, 77–91, 1952. Markowitz was awarded a Nobel Prize in Economics in 1990, jointly with W. Sharpe and M. Miller.

  2. 2.

    For details see Mathematical Appendix A.

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Evstigneev, I.V., Hens, T., Schenk-Hoppé, K.R. (2015). Mean-Variance Portfolio Analysis: The Markowitz Model. In: Mathematical Financial Economics. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-16571-4_2

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