About Foundations of Risk Management
- Thread starter darshang3
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Darshan,
I have same question as asja (source?) as that seems unlikely. For paid members, we are working on updated formula sheets. Re: foundations, only the following have compute/calculate:
Describe how the covariance/correlation of returns between securities affects the returns distribution of a portfolio of securities.
Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen's alpha.
Compute and interpret tracking error, the information ratio, and the Sortino ratio.
Calculate a security’s expected excess returns using the APT model and interpret the results
Calculate and interpret firm value using the CAPM.
This imples the formulas are likely to (i) portfolio variance (always the case), (ii) CAPM-related, esp. Stulz applications (e.g., use CAPM to find discount rate, use that to solve for PV) and (iii) the Amenc risk-adjusted performance metrics (RAPMs; e.g., Sharpe)
David
I have same question as asja (source?) as that seems unlikely. For paid members, we are working on updated formula sheets. Re: foundations, only the following have compute/calculate:
Describe how the covariance/correlation of returns between securities affects the returns distribution of a portfolio of securities.
Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen's alpha.
Compute and interpret tracking error, the information ratio, and the Sortino ratio.
Calculate a security’s expected excess returns using the APT model and interpret the results
Calculate and interpret firm value using the CAPM.
This imples the formulas are likely to (i) portfolio variance (always the case), (ii) CAPM-related, esp. Stulz applications (e.g., use CAPM to find discount rate, use that to solve for PV) and (iii) the Amenc risk-adjusted performance metrics (RAPMs; e.g., Sharpe)
David
I am a big fan of Type II error humor! 
Darshan, I don't think such predictions are warranted ... GARP has given no indications ... and "Foundations" is a new topic. Perhaps the prediction is gleaned from the 2009 sample exams (which admittedly leaned on the calculate AIMS; e.g., 2 questions on Amenc's RAPMs), but I think it's a mistake to extrapolate solely from the samples...
David
Darshan, I don't think such predictions are warranted ... GARP has given no indications ... and "Foundations" is a new topic. Perhaps the prediction is gleaned from the 2009 sample exams (which admittedly leaned on the calculate AIMS; e.g., 2 questions on Amenc's RAPMs), but I think it's a mistake to extrapolate solely from the samples...
David
RAPM = risk-adjusted performance measure....I don't see that Amenc actually uses the term "RAPM" ... I have been using for so long the source escapes me, but i like for any generic ratio given by:
return / risk
so most of Amenc's fit this "profile:
treynor = excess return / risk = beta
sharpe = excess return / risk = volatility
etc
and Crouhy's RAROC qualifies as a RAPM as
RAROC = risk adj return / economic capital
(note EC is actually a risk measure not a capital base ... I think it's very instructive that EC belongs as the denominator of a RAPM as a "currency of risk" as Jennifer Lang says, not a capital resource...that's how i keep EC is perspective, i don't think of a balance sheet--it's not there!--i think of RAROC)
to give contrast, note that ROE would not be a RAPM as common equity in the denominator is not a risk measure.
although now that you have me trying to find the origin of my RAPM use, I see Jorion has (Ch 16)
RAPM = profit/EC or net profit/VaR
...I don't like his co-opting for a specific use b/c I am confident it's a generic term (with virtually infinite flavors) but still you'll note the fair use of VaR in the denominator..
David
return / risk
so most of Amenc's fit this "profile:
treynor = excess return / risk = beta
sharpe = excess return / risk = volatility
etc
and Crouhy's RAROC qualifies as a RAPM as
RAROC = risk adj return / economic capital
(note EC is actually a risk measure not a capital base ... I think it's very instructive that EC belongs as the denominator of a RAPM as a "currency of risk" as Jennifer Lang says, not a capital resource...that's how i keep EC is perspective, i don't think of a balance sheet--it's not there!--i think of RAROC)
to give contrast, note that ROE would not be a RAPM as common equity in the denominator is not a risk measure.
although now that you have me trying to find the origin
of my RAPM use, I see Jorion has (Ch 16)RAPM = profit/EC or net profit/VaR
...I don't like his co-opting for a specific use b/c I am confident it's a generic term (with virtually infinite flavors) but still you'll note the fair use of VaR in the denominator..
David
Hi David,
I found that from the video presentation of Foundations of Risk, the formula is just given like what it is eg: E(C)=V(1+Rf+B)[E(Rm)-Rf]).
Does we be asked to derive formula in order to get the above formula? or we just use it to answer question given?
As for the calculation part, you are using spreadsheet to calculate and simulate formula. It seems like it is more to advanced candidate. It is difficult for me to catch up with.
Please help as I really worried
Thank you
Regards
I found that from the video presentation of Foundations of Risk, the formula is just given like what it is eg: E(C)=V(1+Rf+B)[E(Rm)-Rf]).
Does we be asked to derive formula in order to get the above formula? or we just use it to answer question given?
As for the calculation part, you are using spreadsheet to calculate and simulate formula. It seems like it is more to advanced candidate. It is difficult for me to catch up with.
Please help as I really worried
Thank you
Regards
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