Questions tagged [portfolio-theory]
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45 questions
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portfolio expected return how
"I have 20 years of returns for stocks, bonds, and real estate, and I need to calculate the expected return from this data. I have both the annual returns and the allocation information. How can ...
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Can we use the utility of discounted flows to do asset pricing?
Is it possible to do asset pricing by using the expected utility of the present value of all future discounted cash flows ? I aim to use this utility function to define an optimal portfolio, but I ...
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Why is the portfolio weight of the risk-free asset capped at 1?
I am reading Investment Science by David Luenberger, and in it he creates a portfolio with a risk-free asset and a risky asset. α is the weight of the risk-free asset, and he sets α ≤ 1. Why is that?
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Implications for the economics literature of possible mistakes in Black-Scholes-Merton option pricing?
If this preprint (which is discussed here on QSE) is correct in showing that there are mathematical mistakes in the Black-Scholes-Merton option pricing framework, are there strands of the economic ...
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Dynamic investing problem - Private Equity
I've been thinking about the following problem.
Consider an agent who starts out with \$1 and on any given day $t$, is given the opportunity to invest in an asset with expected return $\mu_t$ and ...
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Can data be created using Monte Carlo Simulation
I am aware that Monte-Carlo Simulation is used for making accurate assumptions by introducing randomness. But can it be used to synthesize or create a dataset? If yes, can someone share an example?
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Asking for the reference of difference between frontier and developed stock market in portfolio construction
I am looking for references highlighting the differences between the developed market (e.g., US) and frontier market (e.g., Vietnam) in portfolio construction (e.g., Markowitz's mean-variance ...
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Why do stock returns seem to be uncorrelated with interest rate?
Since expected return of stock is risk-free rate plus risk premium, intuitively they should be correlated. Of course the size of risk premium is not constant, but it's hard to imagine why risk premium ...
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Experimenting with Mean Variance Analysis
here with a question about mean-variance analysis and utility theory hope you can help me.
First point
My main objetive is to maximize the expected utility from portfolios given by $\sigma_p^2=\frac{C}...
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Budget line for mean variance utility
Consider the mean-variance utility used in CAPM. The budget line when allocating a risk-free and a risky asset is the line connecting the $r_f$ and the risky asset.
Suppose that I have fixed amount ...
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Asking for citation that not all investor can access to borrow at a risk-free rate?
One assumption criticized of Markowitz(1952) is that all investors are able to access to borrowing money at a risk-free interest rate. Is there any reference for that in reality, all investors cannot ...
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Curiousity about the choice of risk-takers investors in Modern Porfolio Theory?
By reading the explanation and example of Modern Portfolio Theory (Markowitz, 1952) from this link, I saw a picture as below
From this website, I also see
The portion of the minimum-variance curve ...
- 1,190
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Black-Litterman Weights for Intersecting Asset Classes
I'm trying to implement Black-Litterman for an arbitrary selection of assets some of which might be subsets or intersect with others.
For example, one portfolio might be
US Equities (VTI)
A global ...
- 111
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risk aversion and convexity of indifference curve
This is a question from the CFA exam. With respect to utility theory, the most risk-averse investor will have an indifference curve with : (a) greatest slope coefficient (b) most convexity The answer ...
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Quadratic utility: monotonicity and risk aversion
I am taking macro class this fall. One of the problems asks whether decreasing absolute risk-aversion and ever-increasing consumption are two unattractive implications of the quadractic utility ...
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