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  • Exercise 2.6

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    Leon Esquierro
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    This document discusses using Roy's identity to derive an equation for the variance of a portfolio. It starts with two base equations and then derives a third equation by equating them. It then substitutes the results into the original variance equation to arrive at a formula expressing portfolio variance as a weighted average of the variances and covariances of the assets.

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    Ex 2.6

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    This document discusses using Roy's identity to derive an equation for the variance of a portfolio. It starts with two base equations and then derives a third equation by equating them. It then substitutes the results into the original variance equation to arrive at a formula expressing portfolio variance as a weighted average of the variances and covariances of the assets.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    8 views1 page

    Exercise 2.6

    Uploaded by

    Leon Esquierro
    This document discusses using Roy's identity to derive an equation for the variance of a portfolio. It starts with two base equations and then derives a third equation by equating them. It then substitutes the results into the original variance equation to arrive at a formula expressing portfolio variance as a weighted average of the variances and covariances of the assets.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Exercise 2.

    By Roy’s identity:

    Eq. 1) likewise Eq. 2)

    From Equations 1) and 2) we will get Eq. 3)

    From equation 1)

    Use equation 3) again =

    or Eq. 4)

    Eq. 5)

    Substitute these into V above

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