Some technical question regarding study notes

[sleepybird]

David,
In your slide for assumptions of CAPM/Homogeneity, what do the 3 Greek symbols stand for? I only know the standard deviation σ. μ (mu) = expected return? What's the last one for?
Thanks.

 

[David Harper CFA FRM]

Hi sleepy, it is meant to be rho to signify correlations. The mean-variance assumption requires returns, variances (volatility^2) and pairwise correlations between each asset pair; e.g., rho(asset x, asset y). As covariance = correlation*volatility*volatility, it can be either a covariance or a correlation matrix as the "third" set of inputs. Thanks, David