In financial models, variables are often correlated, and the model must capture this statistical behavior. Variables that

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In financial models, variables are often correlated, and the model must capture this statistical behavior. Variables that are correlated tend to move together but not in a completely predictable manner. Example: Price of two tech stocks are positively correlated. We can assume that the daily price changes in these two stocks are positively correlated.

$($ a $)$ Suppose a client has a portfolio consisting of $12$ stocks. Assume unit time increment is one week. Compute the drift and volatility parameters from historical data.

$($ b $)$ Discuss how you would do a simulation $-$ optimization. That is $,$ solve a portfolio optimization problem with correlated stock val $-$ ues.