I was able to differentiate the equation for the second time to obtain the expression but I don't know how to use this to show that \(VAR[Di-Vi]=0 \). Please help!

Login

0 votes

I don't think you've read the question correctly, you should be proving that:

$$ Var[Di - \mu Vi] = E[Di] $$

----

To go about that you use the fact that:

$$ Var[Di - \mu Vi] = E[(Di- \mu Vi)^2] - (E[Di- \mu Vi])^2 $$

Where the second term is naturally 0 as you've proved in statement (4.2)

The first term is what you attain from splitting up the pdf into the two values that Di takes on: 0 or 1, and then making the substitution from taking the derivative of the expression given twice.

- All categories
- BUS 1003H - Introduction to Financial Risk (52)
- BUS 2016H - Financial Mathematics (55)
- BUS 3018F - Models (74)
- BUS 3024S - Contingencies (61)
- BUS 4028F - Financial Economics (36)
- BUS 4027W - Actuarial Risk Management (54)
- BUS 4029H - Research Project (5)
- Mphil (1)
- Calculus and Pure Mathematics (4)
- Statistics (16)

...