STAT244.Lecture.04 3

STAT244.Lecture.04 3 - Portfolio Theory with a Risk free...

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

View Full Document Right Arrow Icon
Portfolio Theory with a Risk free asset I Minimizing w 0 Ω w s.t. w 0 μ + (1 - w 0 1) R f = μ p . I Lagrangian: L = w 0 Ω w + δ ( μ p - w 0 μ - (1 - w 0 1) R f ) I Solution: w p = μ p - R f ( μ - R f 1) 0 Ω - 1 ( μ - R f 1) × Ω - 1 ( μ - R f 1) = C p × w I For any asset or portfolio, ‘a’, Sharpe ratio:
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/16/2010 for the course STAT 244 taught by Professor Dr.velu during the Summer '10 term at Stanford.

Ask a homework question - tutors are online