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This paper delves into the evolution of portfolio theories, tracing their development from the seminal work of Markowitz's traditional portfolio theory to the contemporary landscape of modern portfolio management. Emphasizing the relevance for real-world investors, the study scrutinizes the advantages, applications, and limitations of these investment theories. The exploration commences with a comprehensive analysis of return, risk, and various factors integral to portfolio theory. Leveraging qualitative analysis and real-world examples, the paper elucidates the mathematical model underpinning the theory, furnishing investors with a structured investment strategy. The focal points of the paper are the VaR (Value at Risk) model and the beta coefficient. Through an in-depth examination of their mathematical foundations and theoretical underpinnings, the research elucidates the symbiotic relationship between their economic significance and mathematical intricacies. Furthermore, the paper expounds on their collective contribution to the overarching portfolio theory, shedding light on their role as guiding principles for risk-averse investors. By weaving together theoretical frameworks and practical implications, this paper seeks to provide a nuanced understanding of portfolio theories, equipping investors with valuable insights for informed decision-making in the dynamic landscape of financial markets.
Yuechuan Zhao (Tue,) studied this question.