The Capital Asset Pricing Model
This book evaluates the development of Modern Portfolio Theory (MPT) based on the Sharpe CAPM and Ross four-factor APT, underpinned by Modigliani and Miller’s “law of one price”. Today anybody with appropriate software and a reasonable financial education can model risky investment portfolios. But one lesson from the 2007 banking and 2010 euro crises is that computer driven models can be so complex that investors may not interpret their results correctly. Returning to first principles, we therefore explain why MPT is only a guide to action and program trading is no substitute for human judgement. Investors should always understand the models that underpin their analyses.
This book evaluates the development of Modern Portfolio Theory (MPT) based on the Sharpe CAPM and Ross four-factor APT, underpinned by Modigliani and Miller’s “law of one price”. Today anybody with appropriate software and a reasonable financial education can model risky investment portfolios. But one lesson from the 2007 banking and 2010 euro crises is that computer driven models can be so complex that investors may not interpret their results correctly. Returning to first principles, we therefore explain why MPT is only a guide to action and program trading is no substitute for human judgement. Investors should always understand the models that underpin their analyses.
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Behavioural Finance
By: Peter Dybdahl Hede
The content of this book has become ever more relevant after the recent 2007-2009 and 2011 financial crises, one consequence of which was greatly increased scepticism among investment professionals about the received wisdom drawn from standard finance, modern portfolio theory and its later developments. Modern portfolio theory suddenly appeared terribly old-fashioned and out of date for a very sim...
Matrix Methods and Differential Equations
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This book is aimed at students who encounter mathematical models in other disciplines. It assumes some knowledge of calculus, and explains the tools and concepts for analysing models involving sets of either algebraic or 1st order differential equations. The text emphasises commonalities between these modelling approaches. The approach is practical, aiming at insight to understand the mathemati...