The core innovation of post-modern portfolio theory. Total variability of return. Downside risk optimization. Downside frequency, average deviation and magnitude. Main types of formulas for downside risk. Main features of the Sortino and Sharpe ratio.
Аннотация к работе
Ministry of science, education, youth of Ukraine National Technical University “Kharkiv Polytechnic Institute” Post-Modern Portfolio Theory Kharkiv-2012 Introduction Modern portfolio theory (MPT) and its mean-variance optimization (MVO) model for asset allocation are Nobel Prize-winning theories of global equilibrium, but are unreliable for the primary task to which the financial services industry applies them-building portfolios. Post-modern portfolio theory (PMPT) presents a new method of asset allocation that optimizes a portfolio based on returns versus downside risk (downside risk optimization, or DRO) instead of MVO. The core innovation of PMPT is its recognition that standard deviation is a poor proxy for how humans experience risk. Risk is an emotional condition-fear of a bad outcome such as fear of loss, fear of underperformance, or fear of failing to achieve a financial goal. Risk is thus more complex than simple variance but can nonetheless be modeled and described mathematically. PMPT points the w