 Dec 2020

daaronr.github.io daaronr.github.io

HERE
I've been looking for a webpage annotation tool. Perfect. Thank you. Hope to provide actually helpful comments on the content below. Engaging introduction to the course.
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 Oct 2020

en.wikipedia.org en.wikipedia.org

The Yintercept of the SML is equal to the riskfree interest rate. The slope of the SML is equal to the market risk premium and reflects the risk return tradeoff at a given time: S M L : E ( R i ) = R f + β i [ E ( R M ) − R f ] {\displaystyle \mathrm {SML} :E(R_{i})=R_{f}+\beta _{i}[E(R_{M})R_{f}]\,} where: E(Ri) is an expected return on security E(RM) is an expected return on market portfolio M β is a nondiversifiable or systematic risk RM is a market rate of return Rf is a riskfree rate
This is one statement of the key relationship.
The point is that the market will have a single tradeoff between unavoidable (nondiversifiable) risk and return.
Asset's returns must reflect this, according to the theory. Their prices will be bid up (or down), until this is the case ... the 'arbitrage' process.
Why? Because (assuming borrowing/lending at a risk free rate) *any investor can achieve a particular return for a given risk level simply by buying the 'diversified market basket' and leveraging this (for more risk) or investing the remainder in the risk freeasseet (for less risk). (And she can do no better than this.)

This abnormal extra return above the market's return at a given level of risk is what is called the alpha.
this is why you here the stocktouts bragging about their 'alpha'


en.wikipedia.org en.wikipedia.org

Capital asset pricing model
please read this article

quantity beta (β)
You hear about this 'beta' all the time as the measure of 'the correlation of the risk of an asset with the representative market basket'...
but confusingly, \(\beta\) is used to represent the slope of the expected return of an asset as this risk increases.

systematic risk (beta) t
The concept of "systematic risk" is crucial in order to understand the CAPM. This relates to the risk of an 'optimally diversified portfolio'


en.wikipedia.org en.wikipedia.org

If the fraction q {\displaystyle q} of a oneunit (e.g. onemilliondollar) portfolio is placed in asset X and the fraction 1 − q {\displaystyle 1q} is placed in Y, the stochastic portfolio return is q x + ( 1 − q ) y {\displaystyle qx+(1q)y} . If x {\displaystyle x} and y {\displaystyle y} are uncorrelated, the variance of portfolio return is var ( q x + ( 1 − q ) y ) = q 2 σ x 2 + ( 1 − q ) 2 σ y 2 {\displaystyle {\text{var}}(qx+(1q)y)=q^{2}\sigma _{x}^{2}+(1q)^{2}\sigma _{y}^{2}} . The varianceminimizing value of q {\displaystyle q} is q = σ y 2 / [ σ x 2 + σ y 2 ] {\displaystyle q=\sigma _{y}^{2}/[\sigma _{x}^{2}+\sigma _{y}^{2}]} , which is strictly between 0 {\displaystyle 0} and 1 {\displaystyle 1} . Using this value of q {\displaystyle q} in the expression for the variance of portfolio return gives the latter as σ x 2 σ y 2 / [ σ x 2 + σ y 2 ] {\displaystyle \sigma _{x}^{2}\sigma _{y}^{2}/[\sigma _{x}^{2}+\sigma _{y}^{2}]} , which is less than what it would be at either of the undiversified values q = 1 {\displaystyle q=1} and q = 0 {\displaystyle q=0} (which respectively give portfolio return variance of σ x 2 {\displaystyle \sigma _{x}^{2}} and σ y 2 {\displaystyle \sigma _{y}^{2}} ). Note that the favorable effect of diversification on portfolio variance would be enhanced if x {\displaystyle x} and y {\displaystyle y} were negatively correlated but diminished (though not eliminated) if they were positively correlated.
Key building block formulae.
Start with 'what happens to the variance when we combine two assets (uncorrelated with same expected return)'
What are the variance minimizing shares and what is the resulting variance of the portfolio.

Similarly, a 1985 book reported that most value from diversification comes from the first 15 or 20 different stocks in a portfolio.[6]
the conventional wisdom is that there are sharply diminishing returns to this diversification

 Aug 2020

daaronr.github.io daaronr.github.io

Students: please propose some of these as a Hypothes.is comment HERE.
Add some examples here, please.
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 Dec 2019

www.youtube.com www.youtube.com

Shorter 'rooftop' video going through 3 cases of 'twoperson Public goods' via powerpoint
may prove useful in revising


en.wikipedia.org en.wikipedia.org

Nash proved that if we allow mixed strategies, then every game with a finite number of players in which each player can choose from finitely many pure strategies has at least one Nash equilibrium.
It always has at least one Nash equilibrium (but it may only be a NE in mixed strategies).
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www.investopedia.com www.investopedia.com

More volatile underlying assets will translate to higher options premiums, because with volatility there is a greater probability that the options will end up inthemoney at expiration.
That's interesting


www.investopedia.com www.investopedia.com

The option is European and can only be exercised at expiration.No dividends are paid out during the life of the option.Markets are efficient (i.e., market movements cannot be predicted).There are no transaction costs in buying the option.The riskfree rate and volatility of the underlying are known and constant.The returns on the underlying are normally distributed.
Some of the assumptions underlying the BlackScholes model. Do these limit its realism and predictive power?


www.annualreviews.org www.annualreviews.org

In lowincome countries the vast majority are unwilling to pay for effective drugs simply because they are unable to pay. Lowincome nations need more price discrimination—and vastly lower prices—if they are ever to afford the world's most effective medicines.
Does price discrimination help poor countries here? Which countries have more priceinelastic demand? Does PD increase social welfare for this case?


europa.eu europa.eu

She found a German seller offering packs of the same nappies she buys in Luxembourg for the same price she normally pays. Looking more closely at the unit price, however, Nadine realised that the German packs contained 140 nappies, whereas the packs in Luxembourg had only 90, making them much more expensive. She switched straight away to buying all her nappies from the German shop.
If this was price discrimination... which country's consumers likely had the higher price elasticity?


en.wikipedia.org en.wikipedia.org

Channel Tunnel
Is this tunnel a public good? Is it excludable? Is it rival?
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www.salisburycathedral.org.uk www.salisburycathedral.org.uk

I think that the preservation of these documents could be seen as providing pure public good. We value that these have been preserved for posterity even if we don't visit the Magna Carta ourselves. What do you think?

 Nov 2019

vle.exeter.ac.uk vle.exeter.ac.uk

Holt, C., and S. Laury (2002), Risk Aversion and Incentive Effects, American Economic Review, v. 92 (5): 16441655. Crosetto, Paolo, and Antonio Filippin. “A theoretical and experimental appraisal of four risk elicitation methods.” Experimental Economics 19, no. 3 (2016): 613641. Pedroni, Andreas, Renato Frey, Adrian Bruhin, Gilles Dutilh, Ralph Hertwig, and Jörg Rieskamp. “The risk elicitation puzzle.” Nature Human Behaviour 1, no. 11 (2017): 803.
These are worth looking at closely and discussing


www.dropbox.com www.dropbox.com

Suggestion: look at this closely, and the associated readings

we will come back to this when we cover asymmetric information


vle.exeter.ac.uk vle.exeter.ac.uk

11.11 Who benefits from 3DPD?
Suggestion: look at this closely, and the associated readings


www.independent.co.uk www.independent.co.uk

University strikes: Students demand tuition fee refunds for planned walkouts
Interesting discussion, worth looking into.

It's an interesting point


podcasts.apple.com podcasts.apple.com

Two statistics about reducing your risk of an early death made headlines around the world recently. The first seems to be a great reason to add a fourlegged friend to your life. It suggests that owning a dog is tied to lowering your chance of dying early by nearly a quarter. The second statistic claims that even a minimal amount of running is linked to reducing your risk of premature death by up to 30%. Ruth Alexander finds out what’s behind these numbers and we hear from epidemiologist, Gideon MeyerowitzKatz.
It's amazing that statistics like these... (seemingly without even minimal obvious controls for age etc.) get reported so naively in the media. Note that one of the interviewees suggests one approach that would provide evidence on the impact of pets on longevity ... random dog assignment. He seems to doubt the health benefits; I don't know, it seems plausible to me, but I'd like to see some real evidence.


davidreinstein.wordpress.com davidreinstein.wordpress.com

I've hedged (a bit). Have you?


vle.exeter.ac.uk vle.exeter.ac.uk

2018 final exam with suggested answer guidelines
I just put this up ... last year's final exam with suggested answer guidelines
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www.dropbox.com www.dropbox.com

For problem 6 I'll award 1.5 marks for "CD" even though it's not correct. But I admit you need to look at the wording of this question carefully


theconversation.com theconversation.com

Should we help companies tailor prices to your wage packet?
Please leave comments and questions here (or in below comments section if you prefer)
