...Lecture Notes in Finance 1 (MiQE/F, MSc course at UNISG) Paul Söderlind1 14 December 2011 1 University of St. Gallen. Address: s/bf-HSG, Rosenbergstrasse 52, CH-9000 St. Gallen, Switzerland. E-mail: Paul.Soderlind@unisg.ch. Document name: Fin1MiQEFAll.TeX Contents 1 Mean-Variance Frontier 1.1 Portfolio Return: Mean, Variance, and the Effect of Diversification 1.2 Mean-Variance Frontier of Risky Assets . . . . . . . . . . . . . . 1.3 Mean-Variance Frontier of Riskfree and Risky Assets . . . . . . . 1.4 Examples of Portfolio Weights from MV Calculations . . . . . . . . . . . . . . . 4 4 9 19 22 A A Primer in Matrix Algebra 24 B A Primer in Optimization 27 2 . . . . . . . . 31 31 32 37 39 42 45 46 47 3 Risk Measures 3.1 Symmetric Dispersion Measures . . . . . . . . . . . . . . . . . . . . 3.2 Downside Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Empirical Return Distributions . . . . . . . . . . . . . . . . . . . . . 54 54 56 67 4 CAPM 4.1 Portfolio Choice with Mean-Variance Utility . . . . . . . . . . . . . . 70 70 Index Models 2.1 The Inputs to a MV Analysis . 2.2 Single-Index Models . . . . . 2.3 Estimating Beta . . . . . . . . 2.4 Multi-Index Models . . . . . . 2.5 Principal Component Analysis 2.6 Estimating Expected Returns . 2.7 Estimation on Subsamples . . 2.8 Robust Estimation . . . . . . . . . . . . . . . .. .. .. . ...
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