Valuation under Uncertainty

This lecture introduces the concept of risk in investment decisions, where future cash flows are uncertain and associated with different states of nature. It explores the valuation of uncertain cash flows, the rate of return, portfolio returns, and the distribution of portfolio returns. The lecture also covers the estimation of moments from time-series data, historical performance of asset classes, mean-variance utility, optimal mean-variance portfolio choice, and the mean-variance efficient frontier in the two-asset case.