Lecture20-2010 - Portfolio and Risk Analysis: Lecture XX...

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Portfolio and Risk Analysis: Lecture XX Charles B. Moss October 9, 2010 I. An Overview of Portfolio A. The beneFt to holding a portfolio of assets appears to follow the old adage: Dont put all of your eggs in one basket . 1. However, what are the mathematics? 2. Data on the returns for Archer-Daniels-Midland, 3M, Hewlett Packard, and John Deere are taken from the WRDS (Wharton Business School) database is presented in Table 1. B. DeFne the ”optimal portfolio” as min z V ± 12 ² i =1 z i r i ³ s . t . 12 ² i =1 z i ¯ r i =0 . 03 12 ² i =1 z i =1 . 00 (1) where V ± 12 ² i =1 z i r i ³ = 12 ² t =1 ± 4 ² i =1 z i r it - 4 ² i =1 z i ¯ r i ³ 2 ¯ r i = 1 12 12 ² i =1 r it (2) 1
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AEB 6182 Agricultural Risk Analysis and Decision Making Professor Charles B. Moss Lecture XX Fall 2010 Table 1: Portfolio Example Date ADM 3M HP Deere Portfolio 1/31/2003 -0.0282 0.0101 0.0029 -0.0796 -0.0030 2/28/2003 -0.0905 0.0119 -0.0896 -0.0194 -0.0061 3/31/2003 -0.0092 0.0372 -0.0139 -0.0459 0.0195 4/30/2003 0.0259 -0.0307 0.0482 0.1215 -0.0006 5/30/2003 0.0857 0.0086 0.1963 -0.0082 0.0301 6/30/2003 0.0752 0.0198 0.0964 0.0515 0.0340 7/31/2003 0.0210 0.0870 -0.0061 0.1112 0.0779 8/29/2003 0.0601 0.0209 -0.0586 0.1128 0.0241 9/30/2003 -0.0548 -0.0304 -0.0246 -0.0527 -0.0330 10/31/2003 0.0946 0.1419 0.1524 0.1371 0.1417 11/28/2003 0.0000 0.0063 -0.0255 0.0101 0.0029 12/31/2003 0.0651 0.0758 0.0603 0.0660 0.0725 Average 0.0204 0.0299 0.0282 0.0337 0.0300 Variance 0.0035 0.0025 0.0073 0.0058 0.0023 Portfolio 0.0178 0.7339 0.1188 0.1295 1.0000 C. From an expected valuevariance sense one asset dominates another asset if it produces the same expected value for a lower variance.
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This note was uploaded on 02/01/2012 for the course AEB 6182 taught by Professor Weldon during the Fall '08 term at University of Florida.

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Lecture20-2010 - Portfolio and Risk Analysis: Lecture XX...

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