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- Explain correlation to your client. Calculate the estimated correlation between Blandy and Gourmange. Does this explain why the portfolio standard deviation was less than Blandys standard deviation?Which of the following is a justification framework for the mean-variance approach? a)if trading is continuous and asset prices follow a multi-dimensional geometric Brownian motion with drift.b)If the investors’ state-specific utility is an exponential function of the assets variance. c)If investors’ preferences for risk are inter-dependent and serially correlated with asset returns.d)If the returns of all assets follow the Mandelbrot distribution.a)define market risk. b)define delta-hedged position and describe delta hedging. c)describe gamma hedging and vega hedging. d)define and explain value at risk (VAR). e)describe the analytical (variance-covariance) method of calculating VAR, and discuss its advantages and disadvantages.
- A "risk-premium" is the difference between ___________________________ . A) the variance of a stock's returns compared to variance of the market's returns B) systematic and unsystematic risks C) market and firm-specific risks D) an asset's expected return and the risk-free rateWhich of the following statements about the mean-variance criterion is correct? The mean return equals the riskless interest. Investors select assets that provide the highest variance for the same or higher expected return. Investors select assets that provide the highest rate of return. Investors select assets that provide the lowest variance for the same or higher expected return.Why is the variance (or standard deviation) used as a measure of risk? What are the advantages and disadvantages of this risk measure?
- The variance and its square root, the standard deviation, are the most commonly used measures of volatility. True or Falseassume that every asset has the same expected return and variance. furthermore, all assets have the same covariance with each other. as number of assets in a portfolio grows, which becomes more important: variance or covariance? clarify your answer using words, diagrams, formulae or a practical example.What is the expected return on a two asset portfolio and what are its variance and standard deviation? Also, What is R squared?
- How does the application of the standard deviation differ from the application of the coefficient of variation in analyzing investment data? a) Standard deviation b) coefficient of variationSome financial theorists consider the variance of the distribution of expected rates of return to be a good measure of uncertainty. Discuss the reasoning behind this measure of risk and its purpose.One important assumption behind portfolio theory is that investors are “mean-variance maximizers.” What is the meaning of this? Explain why this assumption is important in the delineation of the efficient frontier.