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.

(3) (4 points) A Single Index Model (SIM) specifies two sources of uncertainty for a security's 21.078 return: Systematic risk and firm-specific risk Return variance Systematic risk Firm-specific risk