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Questions tagged [portfolio-theory]

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0
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2answers
25 views

log returns in fianance

Why are log returns used in finance? For example to calculate a stocks performance. There are a lot of articles on that topic yet I don't find them very helpful. Could somebody please explain step by ...
-1
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0answers
9 views

Which model is best suited to show the relationship between macroeconomical factors and the returns of hotels?

I am a graduate student and I want to show the effects of including a hotel in a mixed real estate portfolio. As Hotels are different from normal real estate, I want to show how the returns of ...
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0answers
5 views

Simple mortgage portfolio amortization

I have a large residential mortgage portfolio that has fixed and arm mortgages. I want to roughly calculate the amortization of the arm portfolio by year without delving into loan by loan calculations....
3
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1answer
268 views

Why stochastic dominance is “stochastic”?

I think the CDF is pretty much fixed, so the FOSD (first order stochastic dominance) is pretty much non-stochastic. Why does it have a "stochastic" in its name?
4
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3answers
99 views

A question about Lagrange multiplier(when $\lambda=0$)

I need help in a maximization problem(finding the optimal investment portfolio). where $R_s$ and $\Phi$ are $n$ by $1$, with other variables being scalars. $C^s$ is consumption (or wealth) of an ...
1
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0answers
12 views

Empirical estimates of beta for Mean-variance model

I need to evaluate a lottery according to mean-variance formulation for utility. That is to say, given a lottery X, its utility is given by U(X) = E(X) - bVar(X) where E(X) and Var(X) are the mean ...
0
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1answer
55 views

Flat Term Structure and Immunized Portfolio Strategy

The current term structure is flat at 2%. You have a liability of $500,000 per year for the next five years. You decide to form an immunized portfolio. a) Describe your exact strategy if you ...
4
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1answer
44 views

Two Funds Separation & CAPM

I've read that, concerning the CAPM, in equilibrium all portfolio weights are strictly positive. Why is that? You can also go short in the risk free asset right? And then you're on the right of the ...
1
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1answer
43 views

Short call in binomial option pricing model

I am pretty new at this, so my apologies in advance if the question is too out of place. I have been reading about portfolio replication models, and stumbled upon this example that I don't quite ...
4
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3answers
226 views

Does my research prove market inefficiency?

The long story short, I have developed an index based on a certain distribution. Then I aligned NYSE stocks according to this index i.e. the stocks with the best fit are first and the worst are last. ...
1
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1answer
43 views

How do economists model VNM-rationality violation?

This question concerns the need to generalise utility maximisation, the fact that it's a special case of a general problem familiar to physicists, and the question of whether economists have affected ...
5
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1answer
43 views

given someone's past investing history, is there a way to calculate his risk aversion?

given someone's past investing history, is there a way to calculate his risk aversion? Say, we know this client's investment history for example his past return, is there a way to calculate his risk ...
2
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0answers
121 views

Fundamental Theorem of Asset Pricing (Linear Algebra)

I saw this question in a textbook that I was recently reading and don't really know how to aprpoach this problem. Let $H$ be a finite dimensional vector space with inner product ($\cdotp$, $\cdotp$)....
1
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0answers
78 views

Markowitz Minimum Variance Line - maximise return with a given variance?

There are many example online of how to use Lagrange multipliers to solve Markowitz's minimum variance problem (namely find the weightings for the portfolio which minimises variance for a given ...
3
votes
1answer
157 views

Two asset Markowitz Portfolio Optimization and Capital-Market Line construction for a Given Risk Free Rate

I practice with some excercises about the Markowitz theory. If we have a portfolio with two stocks A and B, with given return $r_A$ and $r_B$, the expected return can be computed as: $r_P= w_A \cdot ...
4
votes
1answer
185 views

Calculating mean variance portfolio with risk aversion parameter

I want to calculate the classic mean variance portfolio (Markowitz) with a risk aversion parameter $\gamma$. I have the following problem where I want to maximize: $max(x_t) \ \ x_t^T\mu_t - \frac{...
3
votes
2answers
367 views

Modern Portfolio Theory Vs Marginal Utility Theory

I'm currently trying to wrap my head around modern portfolio theory and would love a simple explanation on how it differs from a marginal utility model (if at all). As I am understanding it, MPT ...
3
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1answer
49 views

Can we have incomplete markets with a continuum of securities?

Imagine there is a continuum of firms in the economy. Each draws its productivity from the same stochastic process. The stochastic process has unbounded support. The only securities in the economy are ...
0
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0answers
2k views

Finding the covariance of a stock portfolio

So my question goes like this, I have the returns of 3 different stocks AAPL, NKE and BBRY I make 4 portfolios out of them as follows: and the question asks me to compute the correlation coefficient ...
1
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1answer
115 views

Derivative of CARA utility

Can someone help explain the passage here? I'm rusty with my linear algebra so the derivate of these transpose matrices isn't making any sense to me. A detailed explanation would be very much ...
2
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0answers
214 views

Calculating the optimal portfolio for an investor with quadratic utility

The problem is from Asset Pricing and Portfolio Theory by Back and can be found here. The relevant info from section 2.5 can be found here. Given that we have the Expected value and the variance of ...
5
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1answer
189 views

Optimal consumption in Merton-like portfolio choice model with constant wage

My Questions Consider the following problem. It is almost identical to the classic Merton portfolio choice problem. Here I'm solving it using the so-called Martingale method. I have provided my ...
14
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0answers
336 views

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem?

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem? In Duffie's book "Dynamic Asset Pricing," he outlines the "Martingale method" of solving ...
3
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1answer
576 views

Portfolio choice problem of a CARA investor with n risky assets

Ok, I am working on a problem that consists of the following: I am looking to solve the portfolio choice optimization problem (maximizing utility with a known utility function) in the case where all ...
5
votes
1answer
85 views

Finding a maximal growth portfolio

I have the following problem that asks me to solve for the "maximal growth portfolio." Suppose that the equilibrium stochastic discount factor evolves as $$ \log S_{t+1} - \log S_t = \kappa_s(X_t,...