Mpt2016 pdf
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Transcript of Mpt2016 pdf
Mean and Variance
X: random variable with values x
MEAN(X) = =μX1n ∑n
i=1 xi
VAR(X) = = ( −σX2 1
n ∑ni=1 xi μX)2
VAR(X) = = ( − )( − )σX2 1
n ∑ni=1 xi μX xi μX
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Covariance
X: random variable with values xY: random variable with values y
COV(X, Y) = = = ( − )( − )σXY2 σXY
1n ∑n
i=1 xi μX yi μY
COV(X + Y) = + 2 ⋅ +σX2 σXY σY
2
COV( ⋅ X + ⋅ Y) = + 2 ⋅ ⋅ ⋅ +wX wY ⋅wX2 σX
2 wX wY σXY
⋅wY2 σY
2
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Matrix Algebra
2 random variables X and Y
covariance matrix
each element is
weight vector
C = [ ]σX2
σXY
σXY
σY2
σij
=ρijσij
⋅σi σj
w = [ ]wX
wY
COV( ⋅ X + ⋅ Y) = ⋅ C ⋅ wwX wY wT
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Portfolio of Assets
P is a portfolio with m assets with weights and rates
Each asset has n return rates
[ , , . . .w1 w2 wm]T [ , , . . .r1 r2 rm]T
1 ≤ i ≤ m
= 1∑mi=1 wi
0 ≤ ≤ 1wi
= ⋅ C ⋅ wσP2 wT
= ⋅ rrP wT
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