Modern Portfolio Theory: Some Main Results

This article summarizes some main results in modern portfolio theory. First, the Markowitz approach is presented. Then the capital asset pricing model is derived and its empirical testability is discussed. Afterwards Neumann-Morgenstern utility theory is applied to the portfolio problem. Finally, it is shown how optimal risk allocation in an economy may lead to portfolio insurance. KEYWORDS Modern portfolio theory; Markowitz approach; capital asset pricing model; Neumann-Morgenstern utilities; portfolio insurance.