Introduction to Mathematical Portfolio Theory

This concise yet comprehensive guide focuses on the mathematics of portfolio theory without losing sight of the finance.

Mark S. Joshi (Author), Jane M. Paterson (Author)

9781107042315, Cambridge University Press

Hardback, published 11 July 2013

325 pages, 30 b/w illus. 170 exercises
23.4 x 15.5 x 1.9 cm, 0.64 kg

In this concise yet comprehensive guide to the mathematics of modern portfolio theory the authors discuss mean-variance analysis, factor models, utility theory, stochastic dominance, very long term investing, the capital asset pricing model, risk measures including VAR, coherence, market efficiency, rationality and the modelling of actuarial liabilities. Each topic is clearly explained with assumptions, mathematics, limitations, problems and solutions presented in turn. Joshi's trademark style of clarity and practicality is here brought to classical financial mathematics. The book is suitable for mathematically trained students in actuarial studies, business and economics as well as mathematics and finance, and it can be used for both self-study and as a course text. The authors' experience as both academics and practitioners brings clarity and relevance to the book, whilst ensuring that the limitations of models are highlighted.

Preface
1. Definitions of risk and return
2. Efficient portfolios: the two-asset case
3. Portfolios with a risk-free asset
4. Finding the efficient frontier – the multi-asset case
5. Single-factor models
6. Multi-factor models
7. Introducing utility
8. Utility and risk aversion
9. Foundations of utility theory
10. Maximising long-term growth
11. Stochastic dominance
12. Risk measures
13. The Capital Asset Pricing Model
14. The arbitrage pricing model
15. Market efficiency and rationality
16. Brownian motion and stock price models across time
Appendix A. Matrix algebra
Appendix B. Solutions
References
Index.

Subject Areas: Probability & statistics [PBT], Mathematics [PB], Insurance & actuarial studies [KFFN], Investment & securities [KFFM], Economics [KC], Economics, finance, business & management [K], Risk assessment [GPQD]