Lecture__04_Appendix

Lecture__04_Appendix - Investment Management, FINE 441,...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Investment Management, FINE 441, Lecture Notes 4 - Appendix Asset Allocation Cont’d Ruslan Goyenko Faculty of Management McGill University
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1 1 2 - Cov(r1r2) W 1 = + - 2Cov(r1r2) 2 W2 = (1 - W1) 2 2 2 E(r2) = .14 = .20 St 2 12 = .2 E (r1) = .10 = .15 St 1 ρ 2 Minimum-Variance Portfolio in case of 2 assets
Background image of page 2
W1 = (.2)2 - (.2)(.15)(.2) (.15)2 + (.2)2 - 2(.2)(.15)(.2) W1 = .6733 W2 = (1 - .6733) = .3267 Minimum-Variance Combination: ρ = .2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
rp = .6733(.10) + .3267(.14) = .1131 p = [(.6733)2(.15)2 + (.3267)2(.2)2 + 2(.6733)(.3267)(.2)(.15)(.2)] 1/2 p = [.0171] 1/2 = .1308 Minimum -Variance: Return and Risk with ρ = .2
Background image of page 4
W1 = (.2)2 - (-.3)(.15)(.2) (.15)2 + (.2)2 - 2(.2)(.15)(-.3) W1 = .6087 W2 = (1 - .6087) = .3913 Minimum -Variance Combination: ρ = -.3
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
) 1 ( R E The Case of 2 Assets ) 2 ( R E ) ( P R E E(R) Asset 1 Asset 2 σ Perfectly Positive Correlation Perfectly Negative Correlation Imperfect Correlation; Between -1 and 1
Background image of page 6
Minimum-Variance Frontier E(R) Minimum-Variance Portfolio σ Individual Assets Individual Assets Minimum-Variance Frontier X Y Z
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Efficient Frontier 1 σ 2 E(R) Efficient Frontier (portfolios lying between points E and F) A R E 1 B R E 1 B R E 2 A R E 2 A B C D E F
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/28/2012 for the course FINE 441 taught by Professor Ruslangoyenko during the Spring '08 term at McGill.

Page1 / 29

Lecture__04_Appendix - Investment Management, FINE 441,...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online