ASSIGNMENT 1- BU1007 Question 1 (i) The following data represent the cost of electricity during July 2006 for a random sample of 50 one-bedroom apartment in a large city Electricity Charge ($) | 96 | 157 | 141 | 95 | 108 | 171 | 185 | 149 | 163 | 119 | 202 | 90 | 206 | 150 | 183 | 178 | 116 | 175 | 154 | 151 | 147 | 172 | 123 | 130 | 114 | 102 | 111 | 128 | 143 | 135 | 153 | 148 | 144 | 187 | 191 | 197 | 213 | 168 | 166 | 137 | 127 | 130 | 109 | 139 | 129 | 82 | 165
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RISK THEORY - LECTURE NOTES 1. INTRODUCTION The primary subject of Risk Theory is the development and study of mathematical and statistical models to describe and predict the behaviour of insurance portfolios‚ which are simply financial instruments composed of a (possibly quite large) number of individual policies. For the purposes of this course‚ we will define a policy as a random (or stochastic) process generating a deterministic income in the form of periodic premiums‚ and incurring financial
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first. The seminal paper of Markowitz [8] opened a new era in portfolio optimization. The paper formulated the investment decision problem as a risk-return tradeoff. In its original formulation it was‚ in fact‚ a mean-variance optimization with the mean as a measure of return and the variance as a measure of risk. To solve this problem the distribution of random returns of risky assets must be known. In the standard Markowitz formulation returns of these risky assets are assumed to be distributed according
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Assignment 1 1. Looking at SCORE variable‚ the skewness is -0.0511422 and excess kurtosis is 0.208336. For the normal distribution‚ skewness is zero. Since the skewness for SCORE variable is negative‚ this indicates that the distribution is skewed to the left (the long tail will be in the negative direction). For the normal distribution‚ kurtosis is three. So K-3 measures excess kurtosis. Since the excess kurtosis for SCORE variable is positive‚ the distribution is leptokurtic (it has thick tails
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ECON 140 Section 13‚ November 28‚ 2013 ECON 140 - Section 13 1 The IV Estimator with a Single Regressor and a Single Instrument 1.1 The IV Model and Assumptions Consider the univariate linear regression framework: Yi = β0 + β1 Xi + ui Until now‚ it was assumed that E (ui |Xi ) = 0‚ i.e. conditional mean independence. Let’s relax this assumption and allow the covariance between Xi and ui to be dierent from zero. Our problem here is that ui is not observed. Doing OLS
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FINAL EXAM PBHE525 Complete the final exam offline during the final exam week. Once you have complete the exam‚ input your exam into the final exam shell in the exam folder on the course webpage. Good luck 1. 2. 3. 4. 5. 6. 7. 8. US Census statistics show that college graduates make more than $254‚000 more in their lifetime than non-college graduates. If you were to question the validity of this observation‚ what would be your basis for doing so? A. Definition of a college graduate
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d. Calculate 20 p0 . 4. Show that if X is a random variable such that P(X ≥ 0) = 1 then ∞ a. E[X] = € ∫ s(x)dx 0 ∞ 0 € b. E[X 2 ] = 2 ∫ xs(x)dx where s(x) is the survival function for X . € 5. Find the expected value E[X] and the variance Var(X) for the following random variables ( X ): a. X for which µ (x) = 0.5 for x ≥ 0 . € € € x € b. X for which the CDF F(x) = € for 0 ≤ x ≤ 100 . 100 € € 6. Given that px = 0.99 ‚ px +1 = 0.985 ‚ 3 px +1 = 0.95 and qx +3 = 0.02
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Measures of risk for individual financial asset i: Variance of returns: Standard deviation of returns: Covariance of returns assets i and j: Var (ri ) = σ i2 = Expected value of [ri − E (ri )]2 σ i = σ i2 Cov(ri ‚ rj ) = σ ij = Exp. value of [ri − E (ri )][rj − E (rj )] Correlation between returns i and j: Expected portfolio return (N assets): ρij = σ ij σ iσ j N i =1 N E (rp ) = ∑ wi ri (weights wi) Portfolio variance (N assets): 7. Beta of financial asset i: σ = ∑∑ wi
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Exam Questions Question 4 (Semester 2‚ 2005) 96633337 Juan (a) Expected Portfolio Return and Risk Expected Return Risk Covariance = (0.002)(0.06)(0.09)=0.0000108 (b) Minimum Variance (Pendix Ltd) The minimum variance for this portfolio is 0.693‚ indicating that risk is minimized when 69.3 percent of the portfolio is invested in Pendix’s shares. A rational investor would not allow Pendix’s shares to account for more than this proportion
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Beta Management Group is a small investment management company based in Boston‚ which was founded by Ms. Sarah Wolfe (The founder and CEO of the Beta Management Group) in 1988. Ms. Wolfe follows a market timing investment strategy based on two portfolios; the Vanguard index and money market instruments. The goals of Beta Management were to enhance returns but reduce risks for clients via market timing. Ms. Wolfe would keep the vast majority of Beta’s funds in no-load‚ low-expense index funds; and
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