van gogh

RFMontraz · Post by **RFMontraz** » Mon Sep 26, 2005 3:19 pm

Smiley

Johnny · Post by **Johnny** » Tue Sep 27, 2005 11:47 am

LT, was my answer any help to you?

LongTheta · Post by **LongTheta** » Tue Sep 27, 2005 3:17 pm

Hi Johnny,

Yes, thanks. I had no chance to comment on your answer. But I'm still thinking. Both your answer and RFM's report the riskless/historical equity risk rates of return.

But that's assuming you put your money in riskfree bonds and/or a well diversified portofolio and you sit there watching it. You are assuming no further [i]input[/i]. In other words, that no one is sitting there actively watching the portofolio and readjusting it when necessary (whatever [i]necessary[/i] here means).

I wonder if such further [i]input[/i] can consistently improve the rate of return without increasing the risk. I may be totally wrong by default.

Johnny · Post by **Johnny** » Tue Sep 27, 2005 3:49 pm

If you're prepared to assume that an asset price follows a Wiener process then you can use Ito's lemma to tell you what you want to know, can't you?

LongTheta · Post by **LongTheta** » Tue Sep 27, 2005 11:47 pm

Yes, you're right. On the other hand, [i]no one[/i] here assumes any of that. Do they?