The Generalized Stein/Rubinstein Covariance Formula and Its Application to Estimate Real Systematic Risk

K. C. John Wei and Cheng F. Lee
Additional contact information
K. C. John Wei: School of Business Administration, University of Miami, Coral Gables, Florida 33124
Cheng F. Lee: Department of Finance, Rutgers University, New Brunswick, New Jersey 08903

Management Science, 1988, vol. 34, issue 10, 1266-1270

Abstract: This paper generalizes Stein's (Stein, C. 1973. Estimation of the mean of a multivariate normal distribution. Proc. Prague Sympos. Asymptotic Statistics, September 1973.), Rubinstein's (Rubinstein, M. 1973b. A comparative static analysis of risk premiums. J. Bus. 46(October) 604--615; Rubinstein, M. 1976. The valuation of uncertain income streams and pricing of options. Bell J. Econom. Management Sci. 7(Autumn) 407--425.), and Losq and Chateau's (Losq, E., J. P. D. Chateau. 1982. A generalization of the CAPM based on a property of covariance operator. J. Financial and Quant. Anal. 17(December) 783--797.) covariance formula to the case where both variables are functions of multivariate normal random variables. The resulting formula is extremely useful for either implicit functions of, or nonpolynomials of, multivariate normal random variables, such as exponential functions. An application of the use of the generalized Stein/Rubinstein covariance formula to the estimation of real systemic risk is provided to illustrate the results.

Keywords: Stein/Rubinstein covariance formula; capital asset pricing model; systematic risk (search for similar items in EconPapers)
Date: 1988
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.34.10.1266 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:34:y:1988:i:10:p:1266-1270

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().