Shortfall measures probability it doesnt give u a number comp_sci_kid Wrote: ------------------------------------------------------- > volkovv Wrote: > -------------------------------------------------- > ----- > > but shortfall also seemed correct, it does > measure > > probability of not making your target if lets > say > > you use 2 std shortfall, then you can say you > are > > 95% sure you at least get that target > > > shortfall doesnt measure PROBABILITY it gives you > the number. not probability
comp_sci_kid Wrote: ------------------------------------------------------- > volkovv Wrote: > -------------------------------------------------- > ----- > > but shortfall also seemed correct, it does > measure > > probability of not making your target if lets > say > > you use 2 std shortfall, then you can say you > are > > 95% sure you at least get that target > > > shortfall doesnt measure PROBABILITY it gives you > the number. not probability no short fall is a probability
comp_sci_kid Wrote: ------------------------------------------------------- > volkovv Wrote: > -------------------------------------------------- > ----- > > but shortfall also seemed correct, it does > measure > > probability of not making your target if lets > say > > you use 2 std shortfall, then you can say you > are > > 95% sure you at least get that target > > > shortfall doesnt measure PROBABILITY it gives you > the number. not probability I think you might have those mixed up, shortfall risk is a probability, VAR is a absolute number, but does not give a magnitude of loss beyond that number.
“The amount by which the capital required to fulfill a financial obligation exceeds available capital.” From investopedia
yes, if you use exp.return - 2 stdev… that is a performance level, not a probability. is like var
I realized it. In fact, VAR does not give you the magnitude of any loss below a number. That’s why there is an extension called Tail Value VAR. Anyway, I will accept the defeat on this one whatever the correct answer CFAI thinks it is. equity_research_nds Wrote: ------------------------------------------------------- > bluelily Wrote: > -------------------------------------------------- > ----- > > Does VAR measure risk in money terms? Somehow, > I > > didn’t think it was right either. It says VAR > > measures loss in money terms but does not give > the > > magnitude of the worst possible loss. > > > I agree with the stmnt it doesnt tell u the most u > will loose in worst case scenario… shortfall > probabilty also doesnt tell u in monetary terms > how much u will lose…it just tells u the > probabilty of it… > > however u cant use semi-variance for a portfolio > which includes options coz of thier non-linear > payoffs…
Shortfall takes an expected return and a standard deviation and calculates the area under the normal curve corresponding to the risk of not meeting a specific target. If the curve is not normal, you have to use a different probability distribution, perhaps pulled from historical data, but remainder the method is the same.
if u guys feel u can use semi-variance for an options portfolio can anyone explain me the downside risk for a portfolio with call options?
of course, the call option is on the issuer side. equity_research_nds Wrote: ------------------------------------------------------- > if u guys feel u can use semi-variance for an > options portfolio can anyone explain me the > downside risk for a portfolio with call options?
I think the semivariance was asked for a pordfolio with asymmetric returns. ANd it was fine.
i still stand by tht semi-variance is the wrong statement
shortfall was undoubtly correct, you can refer to cfa text
i answered shortfall but i wasn’t sure
semi-variance ok for a portfolio with asymnetric returns…if upside is more than the downside ( defination of aynmetric returns ) u guys say its ok to use semi-variance… then maybe i havent understood the concept… MrDonadei Wrote: ------------------------------------------------------- > I think the semivariance was asked for a pordfolio > with asymmetric returns. ANd it was fine.
The answer was clearly semi-variance because option’s payoff does not follow a normal curve (skewed), wich is needed for a semi-varaince calculation. Ponpon
it was shortfall 100%
here is a question to you all (and again i am not gonna go into specific questions). if your return distribution is highly positively skewed, would semivariance still be a good measure of downside risk?
needhelp Wrote: ------------------------------------------------------- > here is a question to you all (and again i am not > gonna go into specific questions). > > if your return distribution is highly positively > skewed, would semivariance still be a good measure > of downside risk? yes
comp_sci_kid Wrote: ------------------------------------------------------- > needhelp Wrote: > -------------------------------------------------- > ----- > > here is a question to you all (and again i am > not > > gonna go into specific questions). > > > > if your return distribution is highly > positively > > skewed, would semivariance still be a good > measure > > of downside risk? > > > yes as soon as i put it in words, i realized that you are right.
either way, semi-variance was the only debatable one imo, everything else seemed pretty straighted forward