Hi David / Shakti (@David Harper, CFA, FRM, CIPM , ShaktiRathore)
Some empirical studies concluded that the volatility spillover from futures to equity markets during the flash crash was heavily caused by ETP's...
How can ETP blamed for this?
Even if ETP's (or ETF's) didn't exist the...
Thanks for the explanation.
I understand that Hedge Fund manager has an intention to smooth out returns....But there could be a hedge fund manager who is invested in fairly liquid investments and performs really well (with a consistent or increasing returns). In this case the...
Hi David / Shakti (@David Harper, CFA, FRM, CIPM / ShaktiRathore)
In the explanation of managed futures as a hedge fund strategy,
Schweser states that many managed futures funds are market timing funds, which switch between stocks and treasury, it also compares payoff function of a Managed...
Hi David / Shakti.
Can you please explain the following statements made by Roll (on CAPM)
1) "There is only 1 testable hypothesis associated with the CAPM - the market portfolio is mean variance efficient"
by this does he mean that we are wrongly assuming that the market portfolio lies of...
Directional risks are those risks where the loss arises from an exposure to the particular assets of a market. For e.g. an investor holding some shares experience a loss when the market price of those shares falls down.
Non-Directional risk arises where the method of trading is not consistently...
Thank you for your assistance.
the explanation of relative risk seems plausible.
One more thought hitting my head was....
Active risk is a form of Relative Risk....i mean relative risk seems to be a broader (and includes active risk) than Active risk.
Relative risk could be relative to any...
Hi David / Shakti.
Can you please explain the difference between Relative Risk v/s Active Risk.
(Jurion Chapter 7 - AIM 55.5)
Schweser Definitions as under :
-->RELATIVE RISK - is measured by excess return, which is the $ loss relative to the benchmark, the shortfall is measured as the...
couldn't have got a better explanation! you just made it so simple....Thanks a million!
For Marginal VaR...could you explain how the final formula evolved?
i mean MVaR(i) = Change in VaRp / Change in ($ investment i) = Z. change in Std Dev (p) / change in w(i) = Z. Cov (Ri,Rp)/ Std Dev (p)
Thanks for that!.
Can you please explain me the approach taken by schweser (for the above question)?
because they seem to carry these type of calculations at 4-5 different questions in the notes.
Even Their calculation of covariance also seems bizarre (which is also seen quite a...
Hi Shakti ,
Can you please elaborately explain the below question on Incremental VaR (from schweser pg. 30 Book 4 - investment)
Que) A portfolio consist of Asset A & B. these assets are the risk factors in the portfolio.
Volatility of A = 6% , B = 14%.
There are $4 million invested in A and...
Thank you ShaktiRathore !
So is it just shifting from a active strategy to a passive one (Following the Index)?
Also, what is meant by SCALING and TRIMMING of Alpha?
How do they refine the alpha?
Appreciate your help!!
in the "Neutralization of Alpha - AIM 53.3 - Grinold & Kahn Chapter 14 "
Could you explain how us naturalization the process of removing Biases and undesirable bets from alpha.
1) Benchmark Neutralization - "adjusting the benchmark alpha to 0"
Que) here is it that we are adjusting...
Could you please explain the process of Scaling and Trimming alphas
(in the Topic - Grinold & Kahn. Chapter 16 - Refining Alphas - Scaling and Trimming Alpas - AIM 53.2)
1) how do i interpret this formula for scaling :
Alpha = (Volatility) x (Information coefficient) x (Score)...
Thank you Shakti.
Reading your explanation...gave me a sudden blow of wisdom.
im not sure if this is right, but i think since these securities are MBS....so they have negative convexity at lower yields / CREDIT SPREADS.
While all of the different tranches would have a different credit spread...
Hello David / Shakti,
in the readings (Malz Chapter 11) there is an example of a CDS strategy;
--> Sell Protection on equity tranche + buy protection on mezzanine tranche
i.e Long credit and credit spread risk of the equity tranche + short credit and credit spread risk on the mezzanine...
Hi David / Shakti,
Liquidity Risk - The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. (Investopedia)
eg. Convertible bonds can be mapped to Risk factors including Implied Volatilities, Credit spreads...
Thanks for the reply, Shakti.
Real Awesome points made there!
Incase of the synthetic strategy, if there are wild upward swings the position would square off at 1011,
but after some time, if the index starts to reverse and reaches 1010 from above, again a short order will be executed (with...