Measure account for risk, Risk Management

Assignment Help:

The asset management industry uses a variety of "performance measures" to asses the relative performance of managed portfolios or funds, mostly (but not always) relative to an appropriate benchmark. One such measure, the "Sharpe ratio", was introduced in the  lectures. The "Treynor ratio" is defined in very much the same way, with the only exception that the denominator is not the portfolio's volatility ("sigma"), but instead it's  "beta" (i.e. the slope coefficient in a CAPM-style regression of portfolio returns onto a benchmark). Another performance measure used frequently is "alpha" (the intercept in the aforementioned regression). There are other measures (e.g. "M2" or the "Information  Ratio"); feel free to include any of these in your discussion at your discretion.

(a) Provide a discussion of the characteristics of these performance measures (and any others you may choose to include). Discuss in particular:

  • What exactly is being measured?
  • How does the measure account for risk (and what kind of risk)?
  • What are the differences between the measures?

(b) Discuss what performance measure(s) you would employ (and why?) if you were any of the following:

  • The manager of a "fund of funds", selecting a portfolio of funds.
  • A "high-net-worth" individual choosing a hedge fund to invest in.
  • An individual choosing a pension fund to invest their life savings.

(c) Below are two statements that we found in articles on performance measures.

Chose either one of these statements and provide a brief discussion:

 Statement (1):

 Investors use performance measures to decide where to drop their money. But clearly, since very few of us can see into the future, we are constrained to using historical (past) data to compute those measures. But investors probably do not care about how much they would have made if they had invested in the fund in the past, but how much they will make in the future if they invest now. The question is thus, how much does past performance tell us about future performance? Based on the empirical evidence, the answer seems to be: very little!


Related Discussions:- Measure account for risk

Risk assessment - portfolio management, 1. You are given the following long...

1. You are given the following long-run annual rates of return for alternative investment instruments: US Government T-Bills 3.5% Large-cap common stocks 12.1% Long-

CAPM and Security Market Line, Assume that CAPM hypotheses are verified. a...

Assume that CAPM hypotheses are verified. a) Represent the Security Market Line (SML) for a market with a risk premium of 5% and a return of 7% for the Treasury bills. b) Suppos

Futures Contracts, An Australian company purchases wheat on a regular basis...

An Australian company purchases wheat on a regular basis and is concerned about rising grain prices. It is now June and the company is in the process of planning their October whea

State about the interest rate risk, State about the Interest Rate Risk ...

State about the Interest Rate Risk Variability in a security's return resulting from changes in the level of interest rates is referred to as interest rate risk. Such change

Certification, what will be the number one credential for risk management?

what will be the number one credential for risk management?

Define the meaning of return, Define the meaning of Return Return is th...

Define the meaning of Return Return is the amount or rate of produce, profits, proceeds which accrues to an economic agent from an undertaking or investment. It's a reward for

describe a risk-free strategy and delta-hedging position, Explain how you ...

Explain how you would hedge a short position in a European (plain vanilla) call with six  weeks to maturity if the spot price is 60, the strike is 65 and σ = 0.3, r=0.1. You rehedg

RECOVERY, #question.WHAT ARE THE `POST -LOSS OBJECTIVES THAT WOULD HELP A F...

#question.WHAT ARE THE `POST -LOSS OBJECTIVES THAT WOULD HELP A FIRM RECOVER

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd