We're going to introduce the Capital Asset Pricing Model, a toy model designed in the 1950s and 1960s with zero practical relevance for today's markets or tomorrow's market decision-makers (that's you). However, it's important you are able to talk the talk with other finance professionals in the real world, to be able to understand when someone says "stock X has a beta of 0.6", or somesuch. Hence today's lecture on optimal portfolio construction and the model itself. Here's a recording of the lecture also.
So, building directly on our work in simple probability and random walks in finance, we'll have a look at the CAPM. Cool readings are below, the notes I gave out in class are here, the slides are here, the excel sheet I used is here, the mathematica demonstration is here.
Readings
Further Reading
Pilbeam, Chapter 8 (this is a key reading)
André F. Perold, The Capital Asset Pricing Model The Journal of Economic Perspectives, Vol. 18, No. 3. (Summer, 2004), pp. 3-24.