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Study Session 16: Portfolio Management: Process, Asset Allocation, and Risk Management

Conditional VaR

Hi guys, 

Am I right in interpreting Conditional VaR in the following way:

Conditional VaR is the average loss expected, if the loss breaches the VaR level.

Let’s say VaR is $1 million over a one day period, with a level of significance of 5%.

Conditional VaR is the average loss expected if the loss on my portfolio over a one-day period exceeds $1 million.

Is this interpretation correct?


Expression of risk: variance vs. standard deviation

Hi guys,

Risk is more conveniently expressed in terms of variance rather than in terms of standard deviations because variances of uncorrelated variables are additive. Why? What is the meaning of this statement?


Multi-factor models vs. CAPM

Hi guys,

In the study text, we are told that multi-factor models present a much more detailed and richer view of the risks associated with a portfolio compared to the CAPM, because in multi-factor models, we can analyze the different sources of risk as opposed to just the market risk in CAPM.
My question is: doesn’t ‘Market Risk’ in the CAPM model include all the risks that multi-factor model takes into account?
After all, doesn’t the ‘market’ discount every possible risk it can think of?



Portfolio Management - Question

Q )   An investor would like to have a risk-return relationship of 2.3% and 15% standard deviation or better. How big can his borrowing rate maximum be? how leveraged is this portfolio.

Anybody can help on this.

R49 Practice Question 1- Option C


Can anybody Explain why Option C of Question 1 is incorrect, the reason behind that?

Option C :-  “Reduce the duration of P2 to 10 years and P1 to 3 years”

The XLK/XLC/XLY Conondrum

So at the end of September, GICS/S&P are re-shuffling tech, discretionary, and telecom and it’s fking with my mind…someone explain to me where I’m falling astray here…

Alt Investment: Carried Interest

For the exam, there are two ways for a fund to pay carried interest as shown below,

1. Carried interest is paid when value of total portfolio (NAV before distributions) > committed capital 

2. When the value of investment is over a certain IRR? 

I am confused on the second way of calculating carried interest. This method is used when the investments within the portfolio are to be evaluated independently? 

inflation risk factor portfolio question

general question- if we want to hedge against inflation for a fixed income portfolio, would be go long the inflation factor portfolio? and if we want to decrease our sensitivity to inflation for an equity portfolio we would go short the portfolio with a beta of 1 for inflation? kinda confused how these factor portfolios work 

wouldnt mind a comprehensive answer from s2000magician right about now ;)

Enhanced indexing!

I’m a bit confused in portfolio management so anyone following the forum will know that I’m asking a lot of questions :D

I do not get the below statement;

“A common strategy in bond portfolio management is “Enhanced indexing by matching primary risk factors. This strategy is formulated through creating a tracking portfolio with the same factor sensitivities as the index but with a different set of bonds.