文档介绍：Chapter Thirteen Risky Assets
Chapter Thirteen
Risky Assets
What do we do in this Chapter?
We study a special case of consumer choice under uncertainty;
That is, when consumer preference over uncertainty can be reduced to only two parameters: Mean and standard deviation3>.
Mean of a Distribution
A random variable (.) w takes values w1,…,wS with probabilities ??1,...,??S (??1 + · · · + ??S = 1).
The mean (expected value) of the distribution is the average value of the .;
Variance of a Distribution
The distribution’s variance is the .’s av. squared deviation from the mean;
Variance measures the .’s variation.
Standard Deviation of a Distribution
The distribution’s standard deviation is the square root of its variance;
St. deviation also measures the .’s variability.
Mean and Variance
Probability
Random Variable Values
Two distributions with the same
variance and different means.
Mean and Variance
Probability
Random Variable Values
Two distributions with the same
mean and different variances.
Preferences over Risky Assets
Higher mean return is preferred.
Less variation in return is preferred (less risk).
Preferences over Risky Assets
Higher mean return is preferred.
Less variation in return is preferred (less risk).
Preferences are represented by a utility function U(??,??).
U ?? as mean return ?? ??.
U ?? as risk ?? ??.
Preferences over Risky Assets
Preferred
Higher mean return is a good.
Higher risk is a bad.
Mean Return, ??
St. Dev. of Return, ??
Preferences over Risky Assets
How is the puted?
Preferences over Risky Assets
Mean Return, ??
St. Dev. of Return, ??
Preferred
Higher mean return is a good.
Higher risk is a bad.
Budget Constraints for Risky Assets
Two assets.
Risk-free asset’s rate-or-return is rf .
Risky stock’s rate-or-return is ms if state s occurs, with prob. ??s .
Risky stock’s mean rate-of-return is
Budget Constraints for Risky Assets
A bundle containing some of the risky stock an