Uniform integrability: Difference between revisions
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A '''separation property''' is a crucial element of [[modern portfolio theory]] that gives a [[Portfolio (finance)|portfolio]] manager the ability to separate the process of satisfying investing clients' assets into two separate parts.<ref>Bodie, Z, Kane, A, and Marcus, A, (1999), ''Investments'' <math>4^{th}</math> Edition, [[McGraw Hill]], ISBN 0-256-24626-2, pp 226–7</ref> | |||
The first part is the determination of the "optimum risky portfolio". This portfolio is the same for all clients. In one version, it has the highest [[Sharpe ratio]]. See [[mutual fund separation theorem]] for a discussion of other possibilities. It is the construction of a universal portfolio that is kept separate from the individual needs of each client. | |||
The second part is tailoring the use of that portfolio to the risk-aversive needs of each individual client. This is achieved through simulation of a given [[risk-return spectrum|risk-return]] range by allocating the client's total investments partly to that universal portfolio and partly to the risk-free asset. | |||
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[[Category:Finance]] | |||
[[Category:Mathematical finance]] | |||
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Revision as of 03:41, 11 January 2014
A separation property is a crucial element of modern portfolio theory that gives a portfolio manager the ability to separate the process of satisfying investing clients' assets into two separate parts.[1]
The first part is the determination of the "optimum risky portfolio". This portfolio is the same for all clients. In one version, it has the highest Sharpe ratio. See mutual fund separation theorem for a discussion of other possibilities. It is the construction of a universal portfolio that is kept separate from the individual needs of each client.
The second part is tailoring the use of that portfolio to the risk-aversive needs of each individual client. This is achieved through simulation of a given risk-return range by allocating the client's total investments partly to that universal portfolio and partly to the risk-free asset.
43 year old Petroleum Engineer Harry from Deep River, usually spends time with hobbies and interests like renting movies, property developers in singapore new condominium and vehicle racing. Constantly enjoys going to destinations like Camino Real de Tierra Adentro.
- ↑ Bodie, Z, Kane, A, and Marcus, A, (1999), Investments Edition, McGraw Hill, ISBN 0-256-24626-2, pp 226–7
