Financial economics/Tutorials: Difference between revisions

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(for a proof of this theorem see David Blake ''Financial Market Analysis''  page 297 McGraw Hill 1990)
(for a proof of this theorem see David Blake ''Financial Market Analysis''  page 297 McGraw Hill 1990)


::::<math>\mbox{r} = {r_f}+\sum_{j=1}^{n}{ y_j}{B_{ij}}</math>
 
::::<math>\mbox{r} = {r_f}+\sum_{j=1}^{n}{ y_j}{{B}_{ij}}</math>
:
 





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Tutorials relating to the topic of Financial economics.

The Capital Asset Pricing Model

The rate of return, r,  from an equity asset is given by

r = r β(r - rf)

rf  is the risk-free rate of return

rm  is the equity market rate of return

(and rrf is known as the equity risk premium)

and β is the covariance of the asset's return with market's return divided by the variance of the market's return.


(for a proof of this theorem see David Blake Financial Market Analysis page 297 McGraw Hill 1990)



Gambler's ruin

If q is the risk of losing one throw in a win-or-lose winner-takes-all game in which an amount c is repeatedly staked, and k is the amount with which the gambler starts, then the risk, r, of losing it all is given by:

r  =  (q/p)(k/c)

where p  =  (1 - q),  and q  ≠  1/2


(for a fuller exposition, see Miller & Starr Executive Decisions and Operations Research Chapter 12, Prentice Hall 1960)