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Consider a factor model =()++ where ()=0, and the standard deviation is ()=8.0%. There are two assets: A and B, with =0.5, =2.3. and are
Consider a factor model
=()++
where ()=0, and the standard deviation is ()=8.0%. There are two assets: A and B, with =0.5, =2.3. and are idiosyncratic risk satisfying (,)=0, ()=14.8% and ()=10.3%.
(a) Compute the standard deviation for :
(b) Compute the standard deviation for :
(c) The correlation between and is:
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