Microsoft PowerPoint - PoF.ppt

Varianceƒ 81

Total variance of the return on a security

ƒ

Portfolio variance

()

2

1

2

2

(^21)
2
2
2

• 0
  ,
  cov


• 
  

  J
  J
  P
  P
  N J
  K
  J
  J
  N J
  J
  M P
  P
  P
  x
  to
  due
  and
  x
  where
  ε
  ε
  ε
  σ
  σ
  ε
  β ε
  β
  σ
  σ
  β
  σ

  
  

∑

∑

=

=

=

⇒

=

+ =

=

Single-period random cash flows: Factor models - SFM

2

2

2

2

i

M

i

i

ε

σ

σ

β

σ

+

=

⇒