Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What were the steps taken to get from the first equation to the expression that's being multiplied by sigma ? 12.6.2 Impact of Autocorrelation In

What were the steps taken to get from the first equation to the expression that's being multiplied by sigma ?

image text in transcribed
12.6.2 Impact of Autocorrelation In practice, the changes in the value of a portfolio from one day to the next are not always totally independent. Define AP, as the change in the value of a portfolio on day i. A simple assumption is first-order autocorrelation where the correlation between AP; and AP;_, is p for all i. Suppose that the variance of AP, is o' for all i. Using the usual formula for the variance of the sum of two variables, the variance of AP_ + AP, is 02 + 02 + 2po? = 2(1 + p)o The correlation between AP_; and AP, is p'. Extending the analysis leads to the following formula for the standard deviation of CAP, (see Problem 12.11): oVT+2(T - 1)p + 2(T -2)p2 + 2(T -3)p3+ ...2pT-1 (12.5)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Climate Mathematics Theory And Applications

Authors: Samuel S P Shen, Richard C J Somerville

1st Edition

1108750184, 9781108750189

More Books

Students also viewed these Mathematics questions

Question

What, if any, financial support do they provide their students?

Answered: 1 week ago