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2. Consider any portfolio (41, ..., Xn) with x; > 0 for any j = 1, ..., n and {j=1 X; 1. Let r; (
2. Consider any portfolio (41, ..., Xn) with x; > 0 for any j = 1, ..., n and {j=1 X; 1. Let r; ( 1, ,n) denote the continuously compounding return of the jth asset, and rp denote the continuously compounding return of the above portfolio (x1, ..., n). Show that Pp > Di-1 2;!;. (Hint: since ln(x) is a concave function, In(xr + (1 x)r2) > x ln(ri) + (1 - x) In(r2) for any x > 0. You can use this inequality repeatedly to show the claim for any finite n). 2. Consider any portfolio (41, ..., Xn) with x; > 0 for any j = 1, ..., n and {j=1 X; 1. Let r; ( 1, ,n) denote the continuously compounding return of the jth asset, and rp denote the continuously compounding return of the above portfolio (x1, ..., n). Show that Pp > Di-1 2;!;. (Hint: since ln(x) is a concave function, In(xr + (1 x)r2) > x ln(ri) + (1 - x) In(r2) for any x > 0. You can use this inequality repeatedly to show the claim for any finite n)
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