Notation

# Notation - HAAS SCHOOL OF BUSINESS UNIVERSITY OF CALIFORNIA...

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H AAS S CHOOL OF B USINESS U NIVERSITY OF C ALIFORNIA AT B ERKELEY UGBA 103 A VINASH V ERMA N OTATION This note contains a list of the variables used in risk and portfolio theory and the symbols we have assigned to them. Symbol Variable E ( ), E i , E p , E M E ( ) denotes expectation or expected value of , the variable in parenthesis. For instance, E( P ) denotes expectation of P , the price (in brief, expected price), E( R ) denotes expectation of R , the return (in brief, expected return ). When there is a subscript on E , as in E i , it stands for expected return on Security i ( E p stands for expected return on portfolio p , and E M stands for expected return on the market portfolio M. ) i, j i, and j, are index variables running over a set of things such as events or securities. Thus, a typical event in a set of n events is referred to as i th event, or a typical security in a portfolio of n securities is referred to as i th security. M Upper case M typically stands for the market portfolio. n n typically stands for the number of securities in a portfolio. p, p i p j P, P 0 , P A Lower case p typically stands for probability . Thus, p i denotes the probability of the i th event. Lower case p , when used as a subscript , stands for a typical portfolio, p . Thus, R p stands for the return on portfolio, p . Upper case P typically stands for price , and subscripts on it typically denote, depending on the context, the time at which the price prevails ( P 0 is the price at t =0), or the security to which the price pertains ( P A is the price of Security A ). r, r E r A R, R A , R i , R f Lower case r typically stands for the discount rate or the cost of capital . (Later in the course subscripts on r will denote the category to which the cost of capital pertains. This, r E will denote the cost of capital for E , the equity, and r A will denote the cost of capital for A , the assets of the firm.) Upper case R typically stands for the return , and subscripts on it typically denote the security to which the return pertains ( R A is

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