Modern portfolio theory The Capital asset pricing Model By Ding zhaoyong
Modern Portfolio Theory The Capital Asset Pricing Model By Ding zhaoyong
Main contents The caPm's assumptions Market equilibrium The Capital market Line(CMl) The security Market Line(sMl) The market model The Security Characteristic Line scl The Capital Allocation Line(Cal)
Main Contents • The CAPM’s Assumptions • Market equilibrium • The Capital Market Line (CML) • The Security Market Line (SML) • The market model • The Security Characteristic Line (SCL) • The Capital Allocation Line (CAL)
How An Investor makes Inⅴ estment decision First, identify his or her eficient frontier Estimate the expected returns and variances for all securities under consideration Estimate all the covariances among assets Determine the riskfree rate Determine the tangency portfolio Consequently, the eficient set is linear
How An Investor Makes Investment Decision • First, identify his or her efficient frontier – Estimate the expected returns and variances for all securities under consideration. – Estimate all the covariances among assets. – Determine the riskfree rate – Determine the tangency portfolio – Consequently, the efficient set is linear
How An Investor makes Inⅴ estment decision Second, Identify his or her indifference curve Test his or her preference on risk-return and risk tolerance Finally, identify his or her optimal portfolio Let the indifference curve touches but does not intersect the efficient set
How An Investor Makes Investment Decision • Second, Identify his or her indifference curve. – Test his or her preference on risk-return and risk tolerance. • Finally, identify his or her optimal portfolio – Let the indifference curve touches but does not intersect the efficient set
How An Investor makes Inⅴ estment decision The problem is how the investor evaluate the expected returns and risks when they make investment decisions We hereafter introduce some theories or models about how the value of an asset is determined or priced The capitalAsset Pricing Model (CaPm) The Factor Models(Fm) The arbitrary pricing Theory(apt)
How An Investor Makes Investment Decision • The problem is how the investor evaluate the expected returns and risks when they make investment decisions. • We hereafter introduce some theories or models about how the value of an asset is determined or priced. – The Capital Asset Pricing Model (CAPM) – The Factor Models (FM) – The Arbitrary Pricing Theory (APT)