Midterm

Formula Sheet

Formula Sheet

by Xenia Prsa -
Number of replies: 1

Hello Sir,

Hope you are fine. I have a question regarding the formula sheet provided for the upcoming exam.

 I noticed that for some formulas, only symbols or abbreviated versions were included. Would it be possible to provide the full and detailed formulas instead?

The reason Excel is allowed is because, in real life, nobody calculates everything by hand. But in real life, we also have access to detailed formula sheets or even the internet. Having to memorize so many different formulas just increases the chance of typos and mistakes, which do not truly reflect a student’s understanding of the material, but rather their memorization ability.

With this in mind, I kindly ask if it would be possible to include additional formulas in the formula sheet, especially those that are difficult to memorize and prone to typos:

Tangency portfolio of two risky assets 

The variance of a portfolio of N assets in the case of just 2 assets A and B:

Mean-variance utility over a random return 𝑟

Optimal Capital Allocation

Thank you so much for considering and have a nice day.

Kind regards,

Xenia


In reply to Xenia Prsa

Re: Formula Sheet

by Martijn Boons -
Hi Xenia, I hope my answers in the office hours were sufficient, but just to be clear in case someone else is reading this:

The matrix formula for the Tangency portfolio on the formula sheet applies to any set of assets, including 2.
The matrix formula for the variance of a portfolio on the formula sheet applies to any set of assets, including 2. Note also that expression using sums literally sums over the variance and covariance terms, which I suppose is the expression you are looking for.

From my experience, I would say there is a huge benefit to knowing things by heart and I am not asking you to learn by heart formulas that have little intuition. Compare, for instance, the optimal weight in one of the two assets in a two-asset portfolio vs the matrix formula for the tangency portfolio which is "just" expected return divided by variance in multivariate form.

Good luck.

M