April 2011
Intermediate to advanced
328 pages
9h 5m
English
Content preview from Risk Analysis in Finance and Insurance, 2nd Edition
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290 Risk Analysis in Finance and Insurance
HPM
1X
is the first higher partial moment and LP M
2X
is the second
lower partial moment:
HPM
nX
=
1
T
T
t=1
max{0,R
X
− L}
n
,
LP M
nX
=
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T
T
t=1
max{0,L− R
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n
with T equal to number of returns.
(b) Suppose that company A mergers with company C. Find Sharpe and Up-
side Potential ratios for the new firm.
(c) Which merger is more profitable? (Assume, that minimal acceptable re-
turn is equal to the riskless interest rate of 10% compounded annually.)
Company A Company B Company C
0.13 0.091 0.042
0.05 0.148 0.219
0.072 0.127 0.123
−0.003 0.20.142
0.324 0.148 0.032
0.155 0.086 0.031
0.058 0.214 0.175
0.177 0.121 0.136
0.074 0.158 0.132
−0.016 ...
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