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March 31, 2005
Puts and Calls
Posted by bparke at 09:38 PM | Comments (0)
March 29, 2005
Forward and Futures Markets
Today we discussed forward and futures markets as well as puts and calls.
Posted by bparke at 03:17 PM | Comments (0)
March 24, 2005
Risk vs. Expected Return
We can assess the value of a risk in terms of the curvature of an agent's utility function.
This leads to indifference curves for combinations of expected return and risk as measured by statistical standard deviation.
We can also derive a budget constraint.
Put these two elements together, and you have a diagram that explains how people determine the optimal portfolio when they can hold either a risk-free asset or a risky asset.
Different people have different optimal portfolios.
Posted by bparke at 09:29 PM | Comments (0)
to do
Posted by bparke at 03:18 PM | Comments (0)
March 22, 2005
Mean-Variance Analysis - I
Consider three assets and the means, variances, and standard deviationa of their returns.
While the variance is a measure of risk, we can also compute the utility-based value of the risk.
The Central Limit Theorem is a fundamental tool in mean-variance analysis.
Rules for linear combinations of assets are also important.
For example, we can analyze a portfolio of two stocks.
Question, what kind of covariance is best for reducing risk?
Posted by bparke at 09:06 PM | Comments (0)
March 10, 2005
Midterm 1 Answers
Posted by bparke at 10:11 PM | Comments (0)
Progress Reports
A complete set of progress reports and associated forms are in this pdf file.
Posted by bparke at 02:05 PM | Comments (0)
March 08, 2005
Utility-Based Valuation of Risk
Critical Assumption: Agents care about expected utility, not expected dollars.
A path not taken: log utility. While mathematically elegant, the log function makes working with zero dollars difficult, is not found on as many calculators as is the square root function, and does not lend itself to lectures sans calculator.
Posted by bparke at 10:18 PM | Comments (0)
March 01, 2005
Q & A Pictures
Assorted pictures from Thursday, Monday and Tuesday.
An explanation of this morning's WSJ:
(A better answer is on the left.)
What happens if there is a limit to the size of student loans?
Posted by bparke at 07:07 PM | Comments (0)