= Assume that the adjusted returns (; i = I) are very close to zero;...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
= Assume that the adjusted returns Ř (Ř¹; i = I) are very close to zero; think, for example, of rather short horizon investment. In this case, for portfolio weights π = (7¹; i = I) and a > 0, note the first-order approximation Ři (1 + Ejel T³i Ři)" *(1-a [~R³). Σπ Using the above approximation, show that the optimal portfolio for the power (and, when = 1, logarithmic) utility maximization problem is approximately a = π* ≈ (aK)-¹b, where the matrix K and vector b are defined via K¹ = EP [Ř¹ Ř¹], (i.j) = I x I; b = EP[R], ie I. = Assume that the adjusted returns Ř (Ř¹; i = I) are very close to zero; think, for example, of rather short horizon investment. In this case, for portfolio weights π = (7¹; i = I) and a > 0, note the first-order approximation Ři (1 + Ejel T³i Ři)" *(1-a [~R³). Σπ Using the above approximation, show that the optimal portfolio for the power (and, when = 1, logarithmic) utility maximization problem is approximately a = π* ≈ (aK)-¹b, where the matrix K and vector b are defined via K¹ = EP [Ř¹ Ř¹], (i.j) = I x I; b = EP[R], ie I.
Expert Answer:
Answer rating: 100% (QA)
The power utility portfolio optimization problem can be w... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
Posted Date:
Students also viewed these finance questions
-
A typical laboratory diffraction grating bas 5.00 x 103 lines/cm and these lines are contained in a 3.50-cm width of grating. (a) What is the chromatic resolving power of such a grating in the first...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Below, indicated by letters, are the adjusting entries at the end of March. Prepare the required reversing entry in journal form. Account Name Debit Credit (a) 180 (b) 1,050 Prepaid Insurance...
-
A uniform line charge of linear charge density = 3.5 nC/m extends from x = 0 to x = 5 m. (a) What is the total charge? Find the electric field on the x axis at (b) x = 6 m, (c) x = 9 m, and (d) x =...
-
During the year, in Sigma Corporation, Job P90 was started, completed, and sold to the customer for $4.000 The plantwide predetermined overhead rate was $20 per machine hours. The following...
-
Work automation is the practice of replacing human workers with technology (i.e., software programs or robots). Describe the impact that work automation is likely to have on business and society in...
-
On July 1, 2012, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and...
-
On December 31, 2021, Sunland Company issues 185,000 stock-appreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a...
-
Hugo Boss AG is a German designer, manufacturer, and distributer of mens and womens clothing, operating in the higher end of the clothing retail industry. During the period 20042017, the company...
-
Would you hire the Scrapper? Why or why not?
-
Participating in a human rally wave at a football game, you have to stand up every \(15 \mathrm{~s}\). (a) What is the wave frequency? (b) If the stadium is oval and the inner circumference of the...
-
The motion of a wave traveling along an \(x\) axis is given by \[f(x, t)=a \sin [b x+q t \mid,\] with \(a=6.00 \mathrm{~m}, b=\pi \mathrm{cm}^{-1}\), and \(q=12.0 \mathrm{~s}^{-1}\). Determine the...
-
As an earthquake starts, you are standing \(150 \mathrm{~km}\) (as the wave travels) from the epicenter. A geophysicist near the epicenter immediately telephones you to let you know that the...
-
You hold one end of a string that is attached to a wall by its other end. The string has a linear mass density of \(0.067 \mathrm{~kg} / \mathrm{m}\). You raise your end briskly at \(12 \mathrm{~m} /...
-
Explain and draw a graph to illustrate the effect of a decrease in exports on equilibrium expenditure in the short run. Pakistan reported a decrease in its exports from an equivalent of $19 billion...
-
NY Fashions has the following data. If you follow the residual dividend model, how many total dividends, if any, will you pay? Capital Budget $1,500,000 % Debt 65% Net Income (NI) $550,000
-
Design an experiment to demonstrate that RNA transcripts are synthesized in the nucleus of eukaryotes and are subsequently transported to the cytoplasm.
-
The Federal Emergency Management Agency (FEMA) provides disaster relief for states impacted by natural disasters (e.g., hurricanes, tornados, floods). Do these bad weather windfalls lead to public...
-
Suppose you plan to sample 10 items from a population of 100 items and would like to determine the probability of observing 4 defective items in the sample. Which probability distribution should you...
-
How does gender affect the type of advertising that proves to be most effective? An article in the Journal of Advertising Research (May/June 1990) makes reference to numerous studies that conclude...
-
Describe how partial and circular reasoning can be helpful or harmful in resolving ethical dilemmas.
-
Describe the various legal risks for nurses.
-
Describe the various roles of advanced practice nurses.
Study smarter with the SolutionInn App