ECO204
Financial Portfolios 2
Part 1: A Portfolio Consisting of a Risk-F
Asset and Several Risky Assets
Ajaz Hussain, Economics, University of Toronto (STG)
,PDF-Chapters
Financial Portfolios Chapter (recommended as supplementary m
https://www.economics.utoronto.ca/ahussain/204/2020Chapters
CO_204_2018-2019_Finance-1.pdf
,“Target” (Lectures) Portfolio
Investor with Mean-Variance Utility Function invests $" of her own funds in a
one-month forward financial portfolio with:
Fraction (1 − &) of her funds Fraction & of her funds invested in a “Synthetic Ris
invested in a Risk Free Asset (SRA)” consisting of ' ≥ 1 risky assets:
Fraction )! of Fractio
“SRA” funds in … “SRA”
Risky Asset 1 Risky A
“Returns” refers to “Rate of Returns” (!!"#,! )
Lecture Portfolio will estimate future ”returns” and “risk” by historical average returns & historical st
deviation of returns
In Project 2, you will estimate estimate future ”returns” and “risk” by (1) historical average returns & h
standard deviation of returns (2) “Shrinkage” (3) Wiener and Ito Stochastic Processes
, Constructing Lecture Target Portfolio
“3 Step” Process to Portfolio “A”
Construct Target Portfolio Agent invests $" of her own funds in a financial portfolio cons
Fraction (1 − &) invested in a Risk Free Asset Fraction & invested in O
Portfolio A Portfolio “B”
A “Synthetic Risky Asset” consisting of ' ≥ 1 actual risky a
Portfolio B Fraction )! of “SRA” in
Risky Asset 1
… Fra
Portfolio “C”
Agent invests $" of her own funds in a financial portfolio consis
Fraction (1 − &) invested in a Risk Free Fraction & invested in a “SRA
Asset 1 actual risky a
Fraction )! of
“SRA” in Risky …
Target Portfolio Asset 1
(Portfolio C)
Financial Portfolios 2
Part 1: A Portfolio Consisting of a Risk-F
Asset and Several Risky Assets
Ajaz Hussain, Economics, University of Toronto (STG)
,PDF-Chapters
Financial Portfolios Chapter (recommended as supplementary m
https://www.economics.utoronto.ca/ahussain/204/2020Chapters
CO_204_2018-2019_Finance-1.pdf
,“Target” (Lectures) Portfolio
Investor with Mean-Variance Utility Function invests $" of her own funds in a
one-month forward financial portfolio with:
Fraction (1 − &) of her funds Fraction & of her funds invested in a “Synthetic Ris
invested in a Risk Free Asset (SRA)” consisting of ' ≥ 1 risky assets:
Fraction )! of Fractio
“SRA” funds in … “SRA”
Risky Asset 1 Risky A
“Returns” refers to “Rate of Returns” (!!"#,! )
Lecture Portfolio will estimate future ”returns” and “risk” by historical average returns & historical st
deviation of returns
In Project 2, you will estimate estimate future ”returns” and “risk” by (1) historical average returns & h
standard deviation of returns (2) “Shrinkage” (3) Wiener and Ito Stochastic Processes
, Constructing Lecture Target Portfolio
“3 Step” Process to Portfolio “A”
Construct Target Portfolio Agent invests $" of her own funds in a financial portfolio cons
Fraction (1 − &) invested in a Risk Free Asset Fraction & invested in O
Portfolio A Portfolio “B”
A “Synthetic Risky Asset” consisting of ' ≥ 1 actual risky a
Portfolio B Fraction )! of “SRA” in
Risky Asset 1
… Fra
Portfolio “C”
Agent invests $" of her own funds in a financial portfolio consis
Fraction (1 − &) invested in a Risk Free Fraction & invested in a “SRA
Asset 1 actual risky a
Fraction )! of
“SRA” in Risky …
Target Portfolio Asset 1
(Portfolio C)
