Question
Consider the Markowitz model with n= 2 assets, whose returns are characterized by the pairs A= (mu1; sigma1) and B= (mu2; sigma2 ). We here
Consider the Markowitz model with n= 2 assets, whose returns are characterized by the pairs A=
(mu1; sigma1) and B= (mu2; sigma2 ). We here consider the case where the correlation is = - 1.
(a) By using a suitable property of the correlation between random variables, show that there exist
a >0 and b e Rsuch that mu2 = a*mu1 + band sigma2 = a*sigma1 .
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Investment Analysis and Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown, Sanford J. Leeds
11th Edition
1305262999, 1305262997, 035726164X, 978-1305262997
