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)

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.

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.