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borabora
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Posts: 46
Joined: June 4th, 2014, 8:55 am

Portfolio variance

July 9th, 2015, 10:22 am

Hi All,could someone take me through why the portfolio variance can be written like this [$]x'Mx[$] in matrix form? where [$]M[$] is the cov matrix and [$]x[$] the assets weights. Is there any mathematical rule behind that?[$]Var(x'R) [$]= [$]x'Mx[$], where [$]R[$] are the assets returnsAlso a similar thing, the cov of 2 portfolio returns as [$]x'My[$] , where [$]y[$] are the weights of the other portfolio. Thanks
Last edited by borabora on July 10th, 2015, 10:00 pm, edited 1 time in total.
 
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Jhammer
Posts: 37
Joined: February 24th, 2014, 8:05 pm

Portfolio variance

July 9th, 2015, 1:48 pm

 
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borabora
Topic Author
Posts: 46
Joined: June 4th, 2014, 8:55 am

Portfolio variance

July 9th, 2015, 3:27 pm

Jhammer on google many mention the formulae to compute the variance but I could not find a singer author explaining in detail the maths behind why Var(x'R) = x'Mx.
Last edited by borabora on July 8th, 2015, 10:00 pm, edited 1 time in total.
 
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kermittfrog
Posts: 63
Joined: September 9th, 2010, 10:25 am
Location: Frankfurt

Portfolio variance

July 10th, 2015, 4:33 am

At the risk of feeding trollshttp://faculty.washington.edu/ezivot/econ424/portfolioTheoryMatrix.pdf
 
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ExSan
Posts: 4597
Joined: April 12th, 2003, 10:40 am

Portfolio variance

July 11th, 2015, 12:43 pm

QuoteOriginally posted by: boraboraHi All,could someone take me thorough why the portfolio variance can be written like this [$]x'Mx[$] in matrix form? where [$]M[$] is the cov matrix and [$]x[$] the assets weights. Is there any mathematical rule behind that?[$]Var(x'R) [$]= [$]x'Mx[$], where [$]R[$] are the assets returnsAlso a similar thing, the cov of 2 portfolio returns as [$]x'My[$] , where [$]y[$] are the weights of the other portfolio. ThanksCoursera: Financial Engineering + others, explain this equation, check them up
 
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borabora
Topic Author
Posts: 46
Joined: June 4th, 2014, 8:55 am

Portfolio variance

July 11th, 2015, 5:07 pm

I will have a look...
Last edited by borabora on July 10th, 2015, 10:00 pm, edited 1 time in total.
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