The sampling error in estimates of mean-variance efficient portfolio weights

Article Abstract:

This paper presents an exact finite-sample statistical procedure for testing hypotheses about the weights of mean-variance efficient portfolios. The estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an OLS regression. OLS t- and F-statistics can be used for tests on efficient weights, and when returns are multivariate normal, these statistics have exact t and F distributions in a finite sample. using 20 years of data on 11 country stock indexes, we find that the sampling error in estimates of the weights of a global efficient portfolio is large. (Reprinted by permission of the publisher.)

Portfolio management, Statistical sampling, Sampling (Statistics), Error analysis (Mathematics), Analysis of variance

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The valuation of American options with stochastic interest rates: a generalization of the Geske-Johnson technique

Article Abstract:

The Geske-Johnson approach provides an efficient and intuitively appealing technique for the valuation and hedging of American-style contingent claims. Here, we generalize their approach to a stochastic interest rate economy. The method is implemented using options exercisable on one of a finite number of dates. We illustrate how the value of an American-style option increases with interest rate volatility. The magnitude of this effect depends on the extent to which the option is in the money, the volatilities of the underlying asset and the interest rates, as well as the correlation between them. (Reprinted by permission of the publisher.)

Hedging (Finance), Interest rates, Valuation

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Option prices, implied price processes, and stochastic volatility

Article Abstract:

Techniques for option pricing and forecasting volatility in option prices are detailed. Topics addressed include the underlying price process of the security, and determining the probability of stock prices achieving a predetermined level in the future.

Stock Options, Statistical Data Included, Executive compensation, Finance, Stock price forecasting

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