ER - (2xSD) vs. Roy Safety First given, think, guide, either, criteria

yuoska

When, in IPS, given a "can't lose more than x%" criteria, i have seen this done by either using RSF, or exp ret less 2 X Standard Dev.

Anybody have any idea when to use which, if they don't guide you (2007 i think it was told you to use the 2x SD version)

Analti_Calte

if not given anything, i would use RSF. they usually give you the definition exp return less 2x std dev.... i think they'd be explicit. if not and all they gave you was "can't lose more than X" and nothing more, i'd be going RSF.

jmh530

RSF is just how many deviations correct?

Return - Target / SD?

infinitybenzo

my understanding;


RSF - deviations you can accept before you get in trouble. - works once you have the portfolio SD - exp post.

Shortfall risk is return - 2 SD. given as -12% you could given your return objective find the max SD your portfolio can have. So this works as a ex ante calibration in the 2007 exam.