标题: Roy’s Safety First vs. Worst case return [打印本页] 作者: Viceroy 时间: 2011-7-11 19:40 标题: Roy’s Safety First vs. Worst case return
Roy’s Safety First vs. Worst case return (ie. E(R) - 2σ > worst case return)
Does anyone know when to use which?作者: NakedPuts2011 时间: 2011-7-11 19:40
Sorry, doesn't display well. retype again.
Worst case return: E(R) - 2(std dev) > Worse case return作者: IAmNeil 时间: 2011-7-11 19:40
is E(R) - 2(sd) the worst case return?
is this shown in the textbooks?作者: bkballa 时间: 2011-7-11 19:40
Roy's safety first = (R-Rmin)/sd
This is an access return (over the minimum acceptable return) per unit of risk.. clients might require that their minimum acceptable return is risk-free rate.. in which case, your Roy's safety ratio becomes Sharpe ratio...
You can use either to evaluate which balanced portfolio to choose..
If I say, "I don't want my portfolio fall below -5%", my shortfall risk is -5%.. so you better construct such a portfolio that agrees with my risk tolerance...
Edited 2 time(s). Last edit at Tuesday, May 25, 2010 at 01:16AM by kurmanal.作者: Valores 时间: 2011-7-11 19:40
In my understanding, a shortfall risk is the risk that the portfolio will fall below its value... normally, if someone mentions that they want to control that risk, she/he exhibits high risk aversion..
Look at it this way.. picture a bell-shaped curve... 2.5% of the left tail has a Z-score of 1.96.. you are essentially saying that I want my returns lay within the curve.. I want to be 97.5% confident that that will happen.. hence, the formula for shortfall risk = R - 1.96*sd (or rounding it to R-2*sd..
Edited 1 time(s). Last edit at Tuesday, May 25, 2010 at 01:34AM by kurmanal.作者: thommo77 时间: 2011-7-11 19:40
isn't Jensen's alpha is simply that alpha in the regression?
Sometimes if the question say "I don't want my portfolio fall below -10%"
We use Roy = [E(R) - (-10)]/STD to compare which portfolio is higher.
In CFAI textbook, Vol 2, P.136. The question stated that a worst-case return of -10% would be acceptable.
They use E(R) - 2*STD to calculate the worst-case return for each portfolio and see which portfolio has worst-case return > -10%.
My question is..
The statement "I don't want my portfolio fall below -10%" and "the worst-case return of 10% looks are acceptable" looks similar. How do we distinguish which one to use ? (Worst case return or Roy, both are downside risk measures).作者: ll11 时间: 2011-7-11 19:40
this downside risk calculation is shown on vol2 pg134 of the curiculum.
it does raise a serious question of what to use on the exam: this downside risk calculation? or Sortino or Roy's first???
I guess the request would be given in the question?作者: Colum 时间: 2011-7-11 19:40
> Sharpe
> Roy
> Sortino
> Shortfall
I think the first 3 are standard formulas, but the shortfall risk is case-specific.
The Q will give you what the investor considers to be a shortfall risk and its formula, so there is not a set formula. It can be as simple as -5% or a complex formula.
