Page - 50 uses square root of variance first order correlation parameters and page 26 does not. Can anybody tell the difference of these series?
On an another note, pension funds page 261 last sentence of first paragraph, schweser states in AL risk management that “an asset that has high volatility, but is NEGATIVELY correlated with plan liabilities may be viewed as having lower risk” Isn’t it positively correlated?
Am I missing something here?
‘Page - 50 uses square root of variance first order correlation parameters and page 26 does not. Can anybody tell the difference of these series?’
You are referring to Book 2 of Schwarer, Pay little closer attendtion to the terms, on page 26, it is talking about total risk (Variance). If you take the square root of the equation on page 26, you get the equation on page 50, which it is using standard deviation. Wish they would specify better.
"On an another note, pension funds page 261 last sentence of first paragraph, schweser states in AL risk management that “an asset that has high volatility, but is NEGATIVELY correlated with plan liabilities may be viewed as having lower risk” Isn’t it positively correlated? "
This in context of asset-liability (plan). you want plan asset to have negative correlation with plan liability. Think about this, you want asset to go up and liability to go down (so your plan surplus can improve).
Thanks, WS! My eyes were cross eyed and not seeing the difference between standard dev and variance in the formula.
I believe Schweser is correcting the Pension AL sentence on 261.
Oh great…did Schweser make any update yet? I always check the Updates/Errata link on my Schweser online portal, but never see anything.
I have not seen it yet but they emailed me they are. Note there is a question in the schweser practice exams on it as well.