FINA 4104: Advanced Financial Management Professor Xuewen Liu Department of Finance‚ HKUST Spring 2013 Email: Xuewenliu@ust.hk Office hour: 13:30-14:30 Tuesday Assessment: Assignments (12%)‚ Midterm-exam (18%)‚ Projects and presentations (15%)‚ and Final exam (55%) Textbooks: 1. Corporate Finance‚ by J. Beck and P. DeMarzo‚ 2nd edition 2011‚ Pearson Education‚ Inc. Hereafter BD. 2. Financial Markets and Corporate Strategy‚ by M. Grinblatt and S. Titman‚ 2nd edition‚ 2002‚ Irwin McGraw
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negatively correlated. Consider portfolio P formed from assets A and B such that you invest α fraction of your wealth into A and (1 − α) fraction into B. The variance of such portfolio is σ (RP )2 = = = = α2 σ (RA )2 + (1 − α)2 σ (RB )2 + 2α(1 − α)Cov (RA ‚ RB ) α2 σ (RA )2 + (1 − α)2 σ (RB )2 + 2α(1 − α)σ (RA )σ (RB )ρ(RA ‚ RB ) α2 σ (RA )2 + (1 − α)2 σ (RB )2 − 2α(1 − α)σ (RA )σ (RB ) [ασ (RA ) − (1 − α)σ (RB )]2 . Therefore‚ the standard deviation of portfolio P is σ (RP ) = ασ (RA )
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Using Excel=s Solver Tool in Portfolio Theory Excel contains a tool called the Asolver@ that lets you maximize or minimize functions subject to general constraints. We will use this tool to compute the global minimum variance portfolio and the tangency portfolio for the three-firm example (see the spreadsheet 3firm.xls). The spreadsheet for this tutorial is called solverex.xls. The data for this example are given in the following table Stock 1 2 3 E[R] 0.229 0.138 0.052 VAR(R) 0.924 0.862 0.528
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Risk and Return -II PGDM/MMS- SEM-II PROF. V. RAMACHANDRAN FACULTY- SIESCOMS ‚ NERUL 1 PORTFOLIOS & RISK What is an Investment Portfolio A group of Assets that is owned by an Investor Single Security is riskier than Investing in a Portfolio. Portfolio may contain- Equity Capital‚ Bonds ‚ Real Estate‚ Savings Accounts‚ Bullion‚ Collectibles etc. In other words the Investor does not put all his eggs in to one Basket. 2 Diversification –Risk Reduction Let us assume you put your money
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all agents will hold a particular market portfolio‚ which consists of the same proportion of risky assets. Moreover‚ there exists a linear relationship (pricing model) between market price of risk and the return of all efficient portfolios‚ which consist of one riskless asset and the market portfolio of risky assets described previously. This relationship is the slope of the Capital Markets Line which connects the riskless asset with the market portfolio of risky assets. The formula of the Capital
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successful investing were easy‚ we would all be rich. We should start with realistic expectations‚ and knowing what to avoid is as important as knowing what to do. You should also note that FINA 460 covers theoretical topics such as the modern portfolio theory and efficient market hypotheses as well as practical aspects of investing. Those theories may not provide a great practical investment value‚ but these topics provide useful background information. This course emphasizes a quantitative
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Diversification: How Inefficient is the 1/N Portfolio Strategy? Victor DeMiguel London Business School Lorenzo Garlappi University of Texas at Austin Raman Uppal London Business School and CEPR Downloaded from http://rfs.oxfordjournals.org/ at BCV - Research Department on October 26‚ 2011 We evaluate the out-of-sample performance of the sample-based mean-variance model‚ and its extensions designed to reduce estimation error‚ relative to the naive 1/N portfolio. Of the 14 models we evaluate across
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$37.84(1.11) = +$42.00 Short 1 unit of risk-free +$100 -$100(1.05) = -$105 Net Cash Flow 0 +$4.13 What today will be $4.13/(1.05) = $3.93 2. You are the risk manager in a major investment bank. The bank’s current portfolio consists of U.S. stocks (50%)‚ bonds (20%)‚ and derivatives (30%). The expected returns and standard deviations of these investments are Expected Return 13% 7% 25% Standard Deviation 25% 9% 50% A trader comes with a idea about investing
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_____________________________________________________________________ Course Study Guide 2011–12 Course Code: BUS1331 Course title: Value Chain Management Course Leader: Dr. Michael Babula‚ MBA‚ PhD ____________________________________________________________________________ Contents 1. 2. WELCOME ........................................................................................................................................ 3 INTRODUCTION TO THE COURSE ......................
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exposure to each of these factors‚ and now summarized by a vector of factor loadings. The reward to the residual component in the return to a particular asset‚ unsystematic or idiosyncratic risk‚ can be made arbitrarily small simply by considering portfolios with an arbitrarily large number of assets. The basic point‚ however‚ is that the two theories capture two different sets of risks and address different aspects of the premium-awarding scheme for taking such risks. The CAPM‚ by its emphasis
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