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Moodle 
Last updated:
July 21, 2014
The final exam will cover all the material from the course syllabus. The final exam will be
concept oriented but there will also be some calculation involved so bring a calculator. I
will not ask you to do proofs or long derivations. The best place to start your studying
is with the homework assignments. Solutions for the homework assignments are on the
homework page. Check the Notes page for
updates of the class lecture notes.
The exams will be closed book and closed note exam. However, I will
allow one page (double sided) of handwritten or typed notes
Topics to be covered for the Midterm
 Return calculations
 simple and continuously compounded returns
 time aggregation
 Review of random variables
 Shape characteristics (mean, variance,
skewness, kurtosis)
 quantiles
 normal distribution
 linear functions of random variables
 valueatrisk using the normal distribution for
returns and continuously compounded returns
 covariance and correlation
 characteristics of portfolios with risky
assets
 Matrix Algebra
 Compute portfolio expected return and variance
using matrix algebra
 Time Series Concepts
 covariance stationarity
 Autocorrelations
 MA(1) and AR(1) models
 Descriptive statistics
 empirical quantiles, histograms, boxplots, qqplots
 historical valueatrisk
 sample statistics (univariate, bivariate,
time series)
 Constant expected return model
 model assumptions and interpretation
Topics to be emphasized on
the Final Exam
Constant expected return model
 relationship to random walk model
 Monte Carlo simulation
 bootstrapping
 estimation of parameters and standard errors
 hypothesis testing
 rolling estimation
Introduction to portfolio theory
 characteristics of portfolios with risky and
riskless assets
 portfolio frontier
 efficient portfolios
 global minimum and tangency portfolios
Portfolio Theory with Matrix
Algebra
 Express Markowitz algorithm for finding efficient
portfolios using matrix algebra
 Express Markowitz algorithm for finding efficient
portfolios with no short sales
Risk Budgeting and Beta as a Measure of Portfolio Risk

What is Euler's theorem?

How can you additively decompose portfolio SD into
asset specific components?

How do you interpret asset marginal contributions to
SD?

How is beta related to asset contributions to
portfolio SD?
Single Index Model
 Can you interpret the single index regression: R_{i
}= a_{i} + b_{i}*R_{m}
+ e_{i} ?
 How do you decompose asset variance into market
variance and nonmarket variance?
 How do you compute the covariance matrix using the single index
model?
 How do you estimate beta in the single index model?
CAPM
 What are the assumption behind the CAPM?
 What determines as asset's risk premium under the
CAPM?
 How is the CAPM related to the single index model?
 How can you statistically test the CAPM?
Final Exams
