better performance
A portfolio dominates all others if no other equally risky portfolio has a higher expected return, or if no portfolio with the same expected return has less risk.
5
The Old Philosophy about Portfolio Don’t put all your eggs in one basket.
Risk aversion seems to be an instinctive trait in human beings.
6
Return and Risk in Financial Market
n
ERportfo lioxiERi
i1
w hexirethe propoirntv ioensin ts ee dcuirit
8
The Role of Combining Securities
The total risk of a portfolio comes from the variance of the components and from the relationships among the components.
3
Portfolio Management, the overall picture
Focus
(Strategic Planning )
Select
(Portfolio Management)
Source: PM Solutions, Portfolio Management, Dianne Bridges
2
The Emergence of Project Portfolio Management
1952, Modern Portfolio Theory (MPT), Harry Markowitz, Journal of Finance, Portfolio Selection
1990, Harry Markowitz shared Nobel Prize, dominant approach used to manage risk and return within financial markets
1990s, a broader use of ideas of portfolio management 1998, John Thorp, The Information Paradox. Portfolio
management was used to manage risk and maximize return along a number of dimensions. Present, portfolio management as central elements of good investment management
expected return
20
small
18
capital appreciation
company stocks
16
14
12
10 intermediate-
8
term government
bonds
6
large company stocks
growth of income
long-term corporate bonds
two-security
interactive
portfolio risk = riskA + riskB +
risk
p 2x a 2a 2 x b 2b 2 2 x a x bab ab, n x i 1
w hep 2 r eportfvoalrio iance
i 1
xi propoorp ftioorntfin ov lie oisns teto dick
i standa ervd iaots fio to nick abcorrenc laote iofftib ce ietn waeaenb nd
10
The Role of Combining Securities
The point of diversification is to achieve a given level of expected return while bearing the least possible risk.
项目组合管理 (2)
Content
Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
1981, F.Warren McFarian, Portfolio Approach to Information Systems, HBR, to employ a risk-based approach to the selection and management of IT projects.
Manage
(Project Management)
4
Content
Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
4 T-bills
inflation
long-tof principal
income
0
6
12
18
24
30
36
standard deviation (%)
7
The Role of Combining Securities
The expected return of a portfolio is a weighted average of the component expected returns.