CHAPTER 4
Matrix Algebra
- Matrix algebra is used for optimal portfolio selection.
- Matrix algebra is useful for computing expected return of a portfolio that contains many assets.
- Matrix algebra is useful for computing the variance (or risk) of a portfolio that contains many assets.
- Optimal portfolio weights are calculated by maximizing the risk-adjusted return of a portfolio or by maximizing expected utility of a risk-averse investor. For either case, matrix algebra is useful for determining optimal asset allocation.
- Matrix algebra is used in financial risk management.
- A matrix is used to describe the outcomes or payoff of an investment or venture.
- Matrix algebra is used for computing value-at-risk and ...
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