# 423_01 - 4 = 0 34,ρ 34 = ρ 43 = 0 32 Compute the weights...

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COMPUTER ASSIGNMENT I Due Date: Thursday March 11, 2010 (by 5pm) Math 423, Mathematics of Finance Dr. Ahmet Duran, University of Michigan, Department of Mathematics 1. How many diﬀerent values does the random variable S (30) take according to the binomial tree model where p = 0 . 6, S (0) = 18, u = 0 . 05, d = - 0 . 04. What are these values and the corresponding probabilities ? Graph the distribution of S (30). 2. Consider four securities with expected returns, standard deviations of returns and correlations be- tween returns: μ 1 = 0 . 12 1 = 0 . 22 12 = ρ 21 = 0 . 10 14 = ρ 41 = 0 . 22 , μ 2 = 0 . 16 2 = 0 . 24 23 = ρ 32 = 0 . 15 24 = ρ 42 = 0 . 30 , μ 3 = 0 . 22 3 = 0 . 28 31 = ρ 13 = 0 . 20 , μ 4 = 0 . 24
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Unformatted text preview: 4 = 0 . 34 ,ρ 34 = ρ 43 = 0 . 32 . Compute the weights in the minimum variance portfolio from Proposition 5.9. Compute the expected return and standard deviation of this portfolio . Note 1: This is a team project. There may be up to two students in each team only from same section. You will arrange your team. One submission per team is enough. Cooperation among teams is not allowed. Note 2: You will submit the items which are written bold. We accept paper submission. Teams who use Excel should submit it via email directly to grader ([email protected]), as well. 1...
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