STAT244.Lecture.05.06 3

STAT244.Lecture.05.06 3 - A where A is the average pairwise...

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Increasing the Asset Universe I Simple set-up: min w 0 Ω w s.t. w 0 1 = 1; optimal solution is w = Ω - 1 1 1 0 Ω - 1 1 . I Note Var ( R p ) = w 0 Ω w = 1 N 2 N X i =1 Var ( R i ) + 1 N 2 X i 6 = j Cov ( R i , R j ) 1 N 2 · N σ 2 max + 1 N 2 · N ( N - 1) · A = σ 2 max N + N - 1 N · A
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Unformatted text preview: A where A is the average pairwise covariance. Thus we cannot completely eliminate portfolio risk....
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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.

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