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Hi, I am unable to understand this section of the chapter: Constantinides proved that the optimal strategy is to trade whenever risky asset positions hit upper or lower bounds. Within these bounds is an interval of no trading. The no-trading band straddles the optimal asset allocation from a...

Time lag 2 autocorrelation is highest, so autocorrelation with respect to two months prior produces the highest autocorrelation. Altogether we observe the expected decay in autocorrelation with respect to time lags of earlier periods. This result shows that current prices will be less...

Thanks! Got it!

What do we mean by this statement - "A greater number of general risk factors should create less residual risk"?

Thank you so much. Clear now :)

I have the following question as well: 1. Weighted Historical Simulation - A stock market crash might have no effect on VaRs except at a vey high confidence level, so we could have a situation where everyone might agree that risk had suddenly increased and yet that increase in risk would be...

ok I am not sure if I understand fully but I will try to elaborate my understanding. Please correct me where I am wrong. The returns are arithmetic returns and follow a normal distribution with mean μr and standard deviation σr. Now in order to calculate the critical value which is r*, and this...

Please explain me this derivation.

Hi David, I am unable to understand how are we saying : "cutoff return" r* = mean - volatilty * deviate Also, where r* = mean - volatility * deviate, so that VaR = P1 - P2* = P1 * (1 - EXP(mean - volatility * deviate)) - How is VaR = P1-P2?

I have a question about Marginal VaR. Is it possible if someone could guide me how did we arrive at the derivation Marginal VaR = Zc * cov ( Ri , Rp)/standard dev of Rp? I am unable to arrive at this result. It would be great if someone could help me.

Hi David, Can we also define the basis risk to occur because of location to deliver and the quality of the asset? it then gets termed as location basis risk or quality basis risk? stuti

Hi David, I have been having issues understanding the normal/inverted and contango/normal backwardation theories related to the futures pricing. Please let me know if my understanding is correct: Today's date - T1 I am an oil producer and want to sell my oil in the market 6 months forward. In...

Another question: 87.2 Let Y(t) = the S&P 500 Index and let X(t) = the three-month Treasury bill rate. Assume our linear regression model finds the following relationship: Y(t) = -15 + 26*[1/X(t)]. For example, if X(t) = 2.0%, then Y(t) = -15 + 26/2% = 1,285. If the Treasury bill rate starts at...

83.2 If the functional form is given by Y = B1 + B2*X, the population regression function (PRF) …. a. Has one set of values for each SRF; e.g., if five SRFs exist, then five PRFs exist b. Passes, in several points, through the conditional means of (Y) values c. Passes, in several points, through...

yup i got the value when using the excel function and was using some online calculators...however while computing the p value have always used extrapolation..hence was inquisitive abt the exact way...guess i am missing something while computing that...Thanks!

Google’s sample variance over 30 days is 0.0263%. We can test the hypothesis that the population variance (Google’s “true” variance) is 0.02%. The chi-square variable = 38.14: Sample variance (30 days) 0.0263% Degrees of freedom (d.f.) 29 Population variance? 0.0200% Chi-square variable...