FINE 441 Lecture Notes - Lecture 9: Siemens S200, Harry Markowitz, Risk Premium
15 Dec 2015
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Document Summary
Problems from chapter 4 : 5,7,10,12,17 to 21. Chapter 21 page pp 809-810: 1,3,5,6,7,16,26,28,29: risk and risk aversion, concept of risk. The concept of risk and return is developed for a simple investment using the example that is in the text. 2 = p[w1 - e(w)]2 + (1-p) [w2 - e(w)]2 = The possible investor views of risk are presented below. A risk averse investor will demand compensation for uncertainty or risk. A risk neutral investor will be willing to accept a fair bet or would be willing to analyze investments in terms of expected value. A risk seeking investor will take an unfair bet, that is, would be willing to take on an uncertain investment that has a lower expected value for the chance of securing a large profit. Utility is a measure of an investor"s welfare. A function that is used to assign utility for risk and return.
