# Modern Portfolio Theory

## Also known as:

Portfolio Management Theory
Portfolio Theory
MPT
## Category: Financial Theories

Modern portfolio theory is based on the concept of quantifying risk and maximizing returns for a given level of risk. The theory was originated by Harry Markowitz and was introduced in his *Portfolio Selection* paper, published in *Journal of Finance* in 1952.
The theory uses the concept of an **Efficient Frontier**, a curve on the return vs. risk plot that represents the maximum return for the given level of risk.
It’s well known that diversification can reduce risk, but MPT provides a way to quantitatively measure the risk of a portfolio. Using MPT and computer techniques it’s possible to construct an optimized portfolio in an attempt to achieve maximum possible returns for a given level of risk.

### Related links:

http://cepa.newschool.edu/het/schools/finance.htm
http://www.investopedia.com/terms/m/modernportfoliotheory.asp
http://moneyonline.co.nz/calculator/theory.htm