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You would calculate return for each single position and for each segment of time. Following that you would geometrically link all these separate returns.


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You need to model the underlyings, price the derivatives, and then measure risk.


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It doesn't make sense to use the (co)variance(s) of asset values; if you did, by cutting an investment's share of the allocation by half, you would also cut its variance by a factor of 4. In a meaningful portfolio design, the volatility (variance) of an asset, by itself, is the same no matter how much or how little of your portfolio you put in it. Why ...


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Each of these can be used, but each has serious drawbacks. No. 1 is inaccurate unless you use $N>>10$ years of data. But decades of data may not be available or may no longer be relevant to today's economy. No. 2 is good except that the CAPM has been rejected by empirical tests. More advanced models from Asset Pricing Theory may be helpful (FF3, FF5, ...



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