Exercise 31 3 1 Assume that the single factor f is the market rate of return, rM Write the return processes as ri rf i bi (rM rf) i As usual, E i 0 and i is uncorrelated with the market return Show that bi Cov ri , rM Var rM , as in the CAPM ...

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Exercise 31.3.1 Assume that the single factor f is the market rate of return, rM. Write the

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Exercise 31.3.1 Assume that the single factor f is the market rate of return, rM.

Write the return processes as ri −rf = αi +bi (rM −rf)+i . As usual, E[ i ] = 0 and

i is uncorrelated with the market return. Show that bi = Cov[ ri , rM ]/Var[ rM ] , as in the CAPM.

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Financial Engineering And Computation Principles Mathematics Algorithms

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Authors: Yuh-Dauh Lyuu

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Exercise 31.3.1 Assume that the single factor f is the market rate of return, rM. Write the return processes as ri rf = i +bi (rM rf)+i . As usual, E[ i ] = 0 and i is uncorrelated with the market...
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Exercise 31.3.1 Assume that the single factor f is the market rate of return, rM. Write the

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Financial Engineering And Computation Principles Mathematics Algorithms

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