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 stocks. Assume unit time increment is one week. Compute the drift and volatility parameters from historical data.
b Discuss how you would do a simulationoptimization. That is solve a portfolio optimization problem with correlated stock val ues.
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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