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
<activate the model links>
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

    Contents

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