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AbstractMarkowitz (1952, 1959) underlies modern corporate finance literature, from modern portfolio theory, option theory, to risk management (especially value at risk type methodologies). From it, Diversify has entered all languages, such is its power. Terms such as "the only free lunch" have become a way to give praise to Markowitz work. And, just as with all fundamental breakthroughs in the literature it has been extended many directions, sometimes not necessarily to the benefit of the original work, which often gets blamed when one rendition or another breaks down. With almost every MBA graduated believing they know what Markowitz optimization or portfolio theory means, it behooves us to step back and look at some of the basics, the assumptions that are made, the costs of breaking assumptions, and the potential disasters that can occur when those basics behind all of the theories dependent upon Markowitz' original work are ignored.This paper lays out many of the basic underlying assumptions behind creation of Markowitz type portfolios, why they matter, and where those assumptions are ignored and/or broken. Breaking model assumptions is common in actual application of theory. Not understanding the implications of broken assumptions is almost a guarantee of failure for a money manager; it is just a matter of time. As one often hears, "Wall Street (or the City if in Europe) is littered with great ideas that do not work in practice." Some people throw Markowitz and portfolio optimization into that litter bin. We discuss several basic assumptions of modern portfolio theory, when and why they are commonly broken by the best of us in academia and in practice, and discuss the implications for breaking them under trying circumstances.

Financial Risk Management for most corporations has now become a topic of discussion, if not an issue for active implementation. The issues of "Should One Hedge" and "How Should One Hedge" are often segregated and have tended to be so in the literature. Articles dealing with the hedge decision often ignore the implementation issues and vice versa. This article explores the use of Mean Variance portfolio optimization techniques in hedging corporate risks. It links the various sets of literature together to argue that for some firms using modern portfolio management techniques to manage corporate risks can prove advantageous. The article concludes with an analysis of a synthetic European firm exhibiting many of the risks and other qualities apropos a firm deciding to utilize MEAN‐VARIANCE techniques to manage financial risks.