Mean-Variance Analysis: Risk vs. Expected Return

Mean-Variance Analysis quantifies the notions of risk and expected return by applying concepts from statistics. The values of assets are taken to be random variables with various expected values

**Model Link:
Mean-Variance Analysis: Risk vs. Expected Return**

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Printable PDF Exercises

This application studies the case with one risky asset and one risk-free asset. The goal is to provide intuitive answers to three questions.

- How do agents arrive at their optimal portfolio?
- Why do different people will have different optimal portfolios?
- Why, even after they reach their optimal portfolio, do agents continue to trade?

The analysis is conducted within the framework of a diagram of risk vs. expected return.

**Classic
Economic Models**

**Macroeconomics**

**Introduction**

Overview of Macro Models

**Models in Chronological Order**

The Classical Model

The Simple Keynesian Model

The Keynesian IS/LM Model

The Mundell-Fleming Model

Real Business Cycles

The IS/MP Model

The Solow Growth Model

**Financial Markets
**
Utility-Based Valuation of Risk

Mean-Variance Analysis:

Risk vs. Expected Return

Fixed Income Securities:

Mortgage/Bond Calculator

Growth Investments:

Present Value Calculator

**Microeconomics**

**Introduction**

Overview of Micro Models

**Supply and Demand**

Basic Supply and Demand

Who Pays a Sales Tax?

The Cobweb Model and

Inventory-Based Pricing

**Theory of the Firm**

Perfect Competition

Monopoly and

Monopolistic Competition

Price Discrimination

The Demand for Labor

**Theory of the Consumer**

Two Goods - Two Prices

Intertemporal Substitution

Labor Supply, Income Taxes,

and Transfer Payments

**Resources**