Modern Portfolio Theory Vs Marginal Utility Theory?
I'm currently trying to wrap my head around modern portfolio theory and would love a simple explanation on how it differs from a marginal utility model (if at all).As I am understanding it, MPT allows you to create a portfolio of assets in optimal quantities at a given risk factor. However, isn't this basically the same as judging the marginal risk return of each asset and then funding each to its relative "risk return" (e.g. fund Asset A until marginal return is less than asset B, then fund asset B, fund asset B until marginal return is less than C, then fund C).
With MPT we have indifference curves with one "good" (expected return and one "bad" risk. The direction of increasing utility is "north west" reducing risk and increasing expected return are both good things.. The Marginal rate of transformation is the slope of the efficient frontier. The optimal portfolio is determined by the tangency of the investor indifference curves to the perceived opportunity set or efficient frontier.. I have done extensive work extending William Sharpe's work in this area if you need help
