Portfolio UL calculation

Discussion in 'P2.T8. Investment Management (15%)' started by hsuwang, Oct 24, 2009.

  1. hsuwang

    hsuwang Member

    Hello David,

    For the portfolio UL calculation, I know the formula doesn’t include it, but can you explain why if it is a 2 asset portfolio, and we’re treating UL of individual position as stdevs, are we not including the weights in the formula (ie. sqrt(0.5^2(UL^2)+0.5^2(UL^2)+2(p)(UL)(UL)(0.5)(0.5))?

    This looks similar to portfolio stdev calculation, and so that makes me wonder..

  2. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test) Staff Member

    Hi Jack, It's a good observation. Actually, including weights would be okay (see Ong B.6.3) but, in that case, says Ong the UL would be "measured in units of percentage of the portfolio adjusted exposure (AE), that is UL/AE." The given formula is preferred "for consistency with the units used in previous chapters." - David

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