ECON 851 Midterm: ECON851 Midterm2Summer2013Solution
Document Summary
Instructions: this is closed book, closed notes exam, no calculators of any kind are allowed, show all the calculations, if you need more space, use the back of the page, fully label all graphs. Notation for mean-variance portfolios with n risky assets. Share of wealth invested in risk-free asset: 0 . 2: suppose that an investor spends a fraction 0 of his wealth on the risk- free asset, and the rest on risky assets. Let be the portfolio weights on the risky assets. Using the matrix notation on page 1, write the utility maximization problem of an investor with mean-variance utility function u. You can substitute the budget constraint into the objective function, so the above simplifies to: In order to find optimal portfolios for mean-variance investors, we use the optimization toolbox function quadprog. m. This function solves problems of the form: min 0. 5*x"*h*x + f"*x x subject to: a*x <= b.
