STAT244.Lecture.04 2

STAT244.Lecture.04 2 - Portfolio Theory R is N 1 returns on...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Portfolio Theory I R is N × 1 returns on risky assets; E ( R ) = μ ; Var ( R ) = Ω. I Minimize w 0 Ω w =risk, s . t . , w 0 μ = μ p , w 0 1 = 1. I Objective Function: L ( w , δ 1 , δ 2 ) = w 0 Ω w + δ 1 ( μ p - w 0 μ ) + δ 2 (1 - w 0 1). I Let A = 1 0 Ω - 1 μ, B = μ 0 Ω - 1 μ and C = 1 0 Ω - 1 1. Then w p = g + μ p h where g = B D Ω - 1 1 - A D Ω - 1 μ ; h = C D Ω - 1 μ - A D Ω - 1 1. I Obtain w p and σ μ p = p w 0 p Ω w p ; plot ( w p , σ μ p ) to get the efficient frontier. I At the minimum,
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern