The recent introduction of two European index options on the FTSE Eurotrack 100 and the Eurotop 100 is evidence of a demand from investors to hedge pan-European risk. The FTSE Eurotrack 100 was designed to closely resemble the longer established and widely quoted Morgan Stanley European index. The Eurotrack 100 covers a hundred companies in eleven countries in continental Europe. The index is denominated in DM and' a breakdown by value into the different countries covered is given in figure 1. Capitalisation weights for Figure 1 FT-SE Eurotrack 100 Index Norway mark Germany Italy Switzerland France Netherlands Another recently introduced European index is the Eurotop 100 index denominated in EeUs, this index contains twenty two UK companies which represent 27% by value of this index. The attraction of investments in these indices is that they provide a basis for weighted exposure to Europe, investors can then build on this 240 basis by investment in individual countries. The multinational context of the universe of shares defined by this index raises some new questions for the selection of portfolios, whether the portfolios are chosen for absolute performance or to track the index. Various possible objectives of portfolio selection will be discussed, in all cases the crucial role of the covariance matrix of returns is clear. The extra source of risk present in a multinational portfolio is the combination of country risk coupled with foreign exchange risk. Two models of the return covariance matrix are proposed and examined.

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Modelling Reality.- Economic Policy Determinants: Sensitivity Testing Based on the Mahalanobis Distance Statistic.- Time Dominance and I.R.R..- Linear Gears for Asset Pricing.- Stochastic Behaviour of European Stock Market Indices.- Measuring Firm/Market Information Asymmetry: The Model of Myers and Majluf or the Importance of the Asset Structure of the Firm.- The Construction of Smoothed Forward Rates.- An Index of De-stability for Controlling Shareholders.- On Imitation.- Financial Factors and the Dutch Stock Market: Some Empirical Results.- A Present Value Approach to the Portfolio Selection Problem.- Discounting When Taxes are Paid One Year Later: A Finance Application of Linear Programming Duality.- The Asset Transformation Function of Financial Intermediaries.- Management of the Interest Rate Swaps Portfolio Under the New Capital Adequacy Guidelines.- Developing a Multinational Index Fund.- Directional Judgemental Financial Forecasting: Trends and Random Walks.- Forecasting the Behaviour of Bankruptcies.- Theoretical Analysis of the Difference Between the Traditional and the Annuity Stream Principles Applied to Inventory Evaluation.- A Micro-Simulation Model for Pension Funds.- Asset Allocation and the Investor's Relative Risk Aversion.- Financing Behaviour of Small Retailing Firms.- Computing Price Paths of Mortgage-Backed Securities Using Massively Parallel Computing.