Mean-Variance Analysis
A Mean-Variance Analysis is a decision-making model that ...
- AKA: Two-Moment Decision Model.
- See: Capital Asset Pricing Model, Portfolio Theory, Mutual Fund Separation Theorem, Decision Theory, Expected Value.
References
2016
- (Wikipedia, 2016) ⇒ http://wikipedia.org/wiki/Two-moment_decision_model Retrieved:2016-4-15.
- In decision theory, economics, and finance, a two-moment decision model is a model that describes or prescribes the process of making decisions in a context in which the decision-maker is faced with random variables whose realizations cannot be known in advance, and in which choices are made based on knowledge of two moments of those random variables. The two moments are almost always the mean — that is, the expected value, which is the first moment about zero— and the variance, which is the second moment about the mean (or the standard deviation, which is the square root of the variance).
The most well-known two-moment decision model is that of modern portfolio theory, which gives rise to the decision portion of the Capital Asset Pricing Model; these employ mean-variance analysis, and focus on the mean and variance of a portfolio's final value.
- In decision theory, economics, and finance, a two-moment decision model is a model that describes or prescribes the process of making decisions in a context in which the decision-maker is faced with random variables whose realizations cannot be known in advance, and in which choices are made based on knowledge of two moments of those random variables. The two moments are almost always the mean — that is, the expected value, which is the first moment about zero— and the variance, which is the second moment about the mean (or the standard deviation, which is the square root of the variance).