Portfolio management Flashcards
(32 cards)
ETF premium
(ETF price-NAV per share)/(NAV per share)
Effective transaction price = Effective spread in bid-ask vs actual price
Trade size*(actual trade price-(bid+ask)/2)
Effective bid ask spread
2*(actual trade price-(bid+ask)/2)
VWAP (volume weighted average price)
Trade size * (trade VWAP- VWAP Benchmark)
Break-even inflation rate (BEI)
difference between country’s x year default bond and ZCB default free
yield on non-inflation-indexed bonds − yield on inflation-indexed bonds
=inflation + risk premium
Output gaps
Output gaps
>0–> economy is producing beyond sustainable capacity, Associated with high and rising inflation
Actual GDP – Potential GDP
Credit spread
yield – BEI - rf
Inside bid ask spread
Highest bid – Lowest ask
value added = active return
value of portfolio − benchmark return
Composed of asset allocation return and security seleciton return
Expected return of asset
∑(wprp-wbrb)
Return from asset allocation
∑ (wp-wb)*rb
Return from security selection
Portfolio allocation * Value added
VAR
o Value of portfolio*(yearly mean / (n. of trading per year) – 1.65 *(yearly st. dev/ √(n. of trading per year))
Se voglio trasformare invece tutto monthly
Monthly return = Daily return * 30
Monthly standard deviation = daily standard deviation * √30
estimate of minimum loss that will occur with a given probability over a specified period
o expressed as a currency amount or as percentage of portfolio value.
o NOT applicable to portfolios with option
Estimated with
o Parametric method. –>normal distribution (I need mean and st. dev)
o Historical simulation–>historical values for risk factors over some prior lookback period to get a distribution of possible values.
o Monte Carlo simulation. –>each risk factor change drawn from assumed distribution and calculates pf values based on a set of changes in risk factors; repeated thousands of times to get a distribution of possible portfolio values.
Advantages:
o Widely accepted by regulators.
o Simple to understand.
o Expresses risk as a single number.
o Useful for comparing the risk of portfolios, portfolio components, and business units
Disadvantages:
o Subjective, in that the time period and the probability are chosen by the user.
o Very sensitive to the estimation method and assumptions employed by the user.
o Focuses only on left-tail outcomes.
o Vulnerable to misspecification by the user.
active risk squared = variance of active return
active factor risk + active specific risk
dove active specific risk = security selection= ∑(Wp−Wb)^2*σ^2
Weight of portfolio
optimal level of active risk / active risk
Optimal portfolio = Unconstrained pf optimal active risk
(IR/SRb) σb
Sharpe ratio portfolio
√(SR(benchmark)^2+IR(portfolio)^2)
Sharpe ratio
NOT affected by cash and leverage
(Rp-Rf)/σp
Info ratio
affected by cash or leverage
Measure consistency of active return
(Rp-Rb)/(Tracking error)=Ra/σa=(active return)/(active risk)
Info coefficient (IC) –> Fundamental law
2 × (% correct) − 1
Information ratio (fundamental law)
ALWAYS choose investor with higher info ratio (no matter of target active risk, etc.)
(TC)IC√BR
Dove IC = # of stock followed *probability che sia corretto
TC correlate ex ante returns with active weights
IC = manager ability to forecast future–> correlate ex ante forecast with realized returns
Expected return
(TC)IC√BR σ
o ETF risks:
counterparty risk (common for ETNs),
fund closure, and
expectation related risk
o APT assumption
Unsystematic risk can be diversified (systematic no)
Returns are generated using a factor model
No arbitrage opportunities exist
