申論題

2. (15 points) To construct a portfolio using the mean-variance framework, one needs cstimates of the expected return r, the variance  σ²i and the co-variance aj for each stocks, j. Forn stocks, you have to estimate a total of n(n-1)/2 correlation coefficients. Single index models are used, to reduce this hugc amount of needed estimates. Now we are going to construct a portfolio with two assets using the single index model.

(1) (3 points) Please calculate the mean and variance of the stock index return and mean return for asset B.
We run the following regression for each asset.