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Differentiation With Vectors and Matrices
Differentiation With Vectors and Matrices
Differentiation With Vectors and Matrices
Erik Kole
September 6, 2010
In the course Asset Pricing we will often differentiate functions of vectors and matrices.
Typically these functions have a linear or a quadratic form. An example of a linear function
is the return of a portfolio of n assets. For the portfolio return we write rp , while we use r
to denote the vector with the returns of the n assets and w for the portfolio weights. This
yields
n
X
p 0
r =wr= w i ri , (1)
i=1
For the quadratic case of σ p differentiation is bit more advanced, as we need the product
1
rule:
n n
∂σ p X X
= bkj wj + wi bik
∂wk j=1 i=1
n n n
X X X (4)
= bkj wj + bki wi = 2 bkj wj
j=1 i=1 j=1
=2Bk w.
In the second step, I used the fact that a variance matrix is symmetric (so bik = bki ). In
the third step I used vector notation again, with Bk being the k th row of B.
Finally, we need to find the derivative of a whole vector instead of one of its elements.
The derivative of a function g(w) is defined as
∂ g(w)
1 ∂w
∂ g(w)
∂g(w) ∂w
≡ .
2
(5)
∂w ..
∂ g(w)
∂wn