Example of equilibrium model as Capital Asset Pricing Model
Explain the example of equilibrium model as Capital Asset Pricing Model.
Expert
Capital Asset Pricing Model is an illustration of an equilibrium model, as opposed to a no-arbitrage model like Black-Scholes. The mathematics of Capital Asset Pricing Model is very easy. We relate the random return upon the ith investment, Ri, to the random return upon the market as an entire (or several representative index), RM by
Ri=αi+βiRM+ ?i
There i is random with zero mean and standard deviation ei, and uncorrelated along with the market return RM and another ?j. There are three parameters related with all assets as: αi, βi and ei. In this representation we can notice that the return upon an asset can be decomposed in three parts: a constant drift; that random part common along with the index; and a random part not correlated with the index, ?i. The random part i is unique to the ith asset. See how all the assets are associated to the index but are otherwise totally uncorrelated.
Explain the term EGARCH as of the GARCH’s family.
Normal 0 false false
Assume that the treasurer of IBM contains an extra cash reserve of $1,000,000 to invest for six months. The six-month interest rate is 8% per annum in the U.S. and 6% per annum in Germany. Now, the spot exchange rate is DM1.60 per dollar and the six-month forw
Explain the experiment of Oldrich Vasicek of short-term interest rate.
Society's interests can influence financial managers. Explain.
Explain when the dividends should be similar to discounted.
When the quantitative finance is disrepute?
What is Knight in finance theory?
What are the ratios that a potential long-term bond investor would be most interested in?
Explain Capital Asset Pricing Model (CPM).
18,76,764
1958823 Asked
3,689
Active Tutors
1432161
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!