Covariance between markets formula

who is gonna try to memorize this beast? should we even try to waste the few useful braincells left?

^right now i have no idea what formula you are even referring to :frowning:

Is that the Segmented/Integrated one?

I don’t even wanna try to replicate it here. Its in SS 6, LOS 23c.

i just kinda memorized it, didnt really get into details how it worked :-/

Is it that that stuff about the risk premiums for asset classes?

The component formulas are easy to understand. Calc the ERP for Integrated and Segmented separately, add illiquidity premium. Take the weighted average. Add rfr and you get E®. Calculate beta and covariance as per normal. Rinse and repeat.

ITs the result of a multi-factor model output so no I’m not. If its the same one 23-3a&b right?

or is that the COV1,2 = B1B2Sigma^2mkt

the fromula is this cov(i,j) = b1i*b1j * var(F1) + b2i*b2j * var(F2) + (b1ib2j + b1J*b2i)*cov(F1,F2)

^^^ Yeah that one was a result of a multifactor model so I dont think its all that important, FWIW

^something like that.

this formula can be simplified cov(i,j) = beta(i) * beta(j) * std(m)^2 where std(m)^2 = market variance

I just hope that if they ask this, it will be in multiple choice format then i know the answer is C.

matricies/vectors (a b) (c d) etc