Theoretical Review o price level price variabilityvolatility Why

Theoretical Review o. 가격 수준(price level)과 가격 변동성(price variability/volatility) Why varies?

o. 위험(risk)과 불확실성(uncertainty) “Knightian uncertainty is immeasurable, not possible to calculate, while in the Knightian sense risk is measureable (Wikipedia)” Risk is the situation where the outcome is unknown but the probability of alternative outcome is known Uncertainty is the situation where the probability of different outcomes is unknown

o. 위험의 종류 가격위험(price risk) 생산위험(production risk) 신용위험(credit risk) 제도위험(institutional risk) 지배구조위험(governance risk)

o. 위험의 측정 절대평균편차(mean absolute deviation) 분산/표준편차(standard deviation) 변이계수(coefficient of variation) 준분산(semi-variance)

o. 효용함수와 위험에 대한 태도(attitude towards risk) Diminishing marginal utility of money Fair game

o. 위험에 대한 태도와 위험프레미엄(risk premium) Risk premium larger with larger risk Xc = certainty equivalent Risk premium, rp = E(X) – Xc, where U(Xc) = E[U(X)) < U(E(X) = X) if risk averse 1. Maximum amount that a risk averter is willing to pay to avoid risk 2. Minimum compensation required by a risk averter to take risk

o. Decision Making with Mean-Variance Model Max. E(U) = E(πi) – 0. 5λσ2πi Where λ is the price of risk Which project to choose?

o. Efficient Portfolio and Portfolio Selection Minimize σp 2 s. t. E(rp) = Σxi. E(ri) ≥ r 0 Σxi = 1 xi ≥ 0

o. Portfolio Selection 구성자산의 수가 커질수록 위험감소 효과가 커짐 (증명) ․ σp 2 = Σxi 2σi 2 + ΣiΣj≠ixixjσij ․ If the same weight, xi = 1/N for all xi. σp 2 = Σσi 2/N 2 + N(N-1)E(σij)/N 2 ․ With infinite number of assets, N->∞ lim σp 2 = lim {Σσi 2/N 2 + N(N-1)E(σij)/N 2} N->∞ = 0 + E(σij) (= non-systematic risk + systematic risk)

o. CAPM과 위험프리미엄 Capital Asset Pricing Model Risk premium = E(Rm) - Rf Risk is paid only for systematic risk