02-05 How hedge funds use the CAPM

Two stock scenario:

A: predict +1% over mkt, long $50,
B: predict -1% below mkt, short $50,
then

若大盘没涨也没跌

Two stock CAPM math:


若则纯套利。

How to allocate A and B?



Find and so that mkt risk is minimized.


联立方程解出

CAPM for hedge funds summary
Assuming:

  • Information >>

CAPM enables:

  • minimize mkt risk,
  • , long-short

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