Unformatted text preview: u invest in N of these projects, what is the mean and the variance of the total profit? [Hint: Use the results from Question 1b]. Mean = N/2. Variance = 3N2/4 1
c) Suppose that you want to maximize the mean
variance criterion E [ X ] " Var( X ) 2
(in terms of the class slides, we are assuming parameters α=1, β=½). Write down the mean
variance criterion as a function of the number of projects N. !
N/2
3N2/8. d) How many projects should you invest if you want to maximize the mean
variance criterion? [Hint: You may want to use Excel to calculate the criterion for different numbers of projects N=0,1,2,3,4,5,…]. 1. Question 3. Consider the automobile accident example presented in class (see Lecture 1 slides). a) What is the VaR at level 1%? 10k b) What is the VaR at level 5%? 5k On parts (c) and (d), suppose that...
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 Spring '09
 KENT/SMETTERS/NINI
 1%, 3k, 2k, AirTrain Newark, $3000, the00

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