Capital Markets and the Pricing of Risk推荐.pdfVIP

CHAPTER 10 Capital Markets and the Pricing of Risk NOTATION VER THE FIVE-YEAR PERIOD 2003 THROUGH 2007, investors in General Mills, Inc., earned an average return of 7% per year. p R probability of return R O Within this period, there was some variation, with the annual Var(R ) variance of return R - 1.2% in 2003 to almost 20% in 2006. Over the same return ranging from SD (R ) standard deviation of period, investors in eBay, Inc., earned an average return of 25%. These return R investors, however, gained over 90% in 2003 and lost 30% in 2006. Finally, E [R ] expectation of return R investors in three-month U.S. Treasury bills earned an average return of Divt dividend paid on date t 2.9% during the period, with a low return of 1.3% in 2004 and a high return Pt price on date t of 5% in 2007. Clearly, these three investments offered returns that were very different in terms of their average level and their variability. What R realized or total return t of a security from date accounts for these differences? t - 1 to t In this chapter, we will consider why these differences exist. Our goal R average return is to develop a theory that explains the relati