Portfolio theory and valuation coursework
Portfolio theory and valuation coursework
Preliminary Instructions:
• •
• • •
The final work must consist of a Matlab code, and a document, either in Word or Pdf
The Matlab code must work, that is by just running the code I must get the results that you obtain
Then, report your numerical results on the document. In the document you must also report your plots and your comments
Portfolio theory and valuation coursework
The final document must not exceed the 10 pages, including any reference or appendix, with font size 12, and enough space across lines
State clearly what the plot are showing, either in words or by a legend. The plots must be large enough to be easily interpreted
Portfolio theory and valuation coursework
Part 1. Modern Portfolio Theory
– Q1. Describe the behaviour of the stock returns, with plots and descriptive statistics (mean, variance, median, etc), by asset and by group of assets (i.e, by country and sector)
– Q2. Compute 20 optimal portfolios, starting with the minimum variance portfolio: compute the optimal weight for each asset, and the corresponding portfolio return and risk. Plot the efficient frontier and comment your results
– Q3. Compute 5 optimal portfolios corresponding to 5 different portfolio expected returns that you want to achieve with your portfolio. Compute the corresponding portfolio risk. Plot the efficient frontier and comment your results
– Q4. Impose additional constraints at your choice for each of the two groups of stocks. Motivate your choice. Then, given your constraints, compute 10 optimal portfolios, starting with the minimum variance portfolio: compute the optimal weight for each asset, and the corresponding portfolio return and risk. Plot the efficient frontier and comment your results
Portfolio theory and valuation coursework
2 Part 2. Capital Asset Pricing Model
– Q6. Describe the behaviour of the stock market returns, and the risk-free rate of return, with plots and descriptive statistics. In particular, compare against the stock returns of the first part
– Q7. Compute the CAPM beta for each asset, derive the expected return of each asset according to the CAPM, comment on the statistical and the economic output of your computation
– Q8. Plot the SML according to your estimation, and then conclude whether a stock is over/undervalued according to your estimation, numerically and graphically
Portfolio theory and valuation coursework
3 Part 3. Diversification Measures
– Q9. Compute the Herfindhal Index and the Entropy Measure for the first 3 optimal portfolios that you have obtained at Q2. Rank the portfolios according to the level of diversification, for each diversification index. Comment your results
Portfolio theory and valuation coursework
