L3 Corner Portfolios

CFA Level III
#1

Schweser appears to have a lot of corner portfolio questions still in their Qbank for Asset Allocation.

I was under the impression that selecting the appropriate asset allocation via corner portfolios is NOT still included as part of the updated curriculum, correct?

I’m assuming this is just (another) oversight by KS?

#2

That’s right, the CFAI books go over the definition and include the concept in a few examples (Examples 2 and 4 of Reading 17 from the CFAI text), but that’s about it.

#3

Schweser has lots of corner portfolio calculation questions because corner portfolio calculation questions are easy to write.

#4

Hmm…don’t you work for Kaplan? Duties to Employers much? Hahahah!

#5

I don’t.

I did some contract work for them a few years ago.

#6

To reconfirm, corner portfolios is not a concept that would likely be tested on the 2018 exam, is that correct?

I came across a question in the online CFAI Qbank that makes a mention of the corner portfolio. Can anyone please comment on how much detail do we really need to know for this concept?

#7

Have You signed a Noncompetitive clause? :slightly_smiling_face:

#8

I would still memorize the formula (i.e how to calculate the weightings). Corner portfolios have been popular AM questions for the past few years.

#9

Thanks, Mr RS. Could you also comment on how to calculate the standard deviation of two corner portfolios? Is it calculated simply as:

Std Dev (P1)xW(P1) + Std Dev (P2)xW(P2)?

Thanks!

#10

I believe that that’s how the curriculum does it. They’re assuming that the correlation of returns between adjacent corner portfolios is zero. That’s not necessarily true, but that’s what they assume. As should you, for the exam.

#11

I didn’t.

And even if I did, such agreements aren’t enforceable in California.

#12

Regulatory arbitrage?

Spent my days with a woman unkind Smoked my stuff and drank all my wine. Made up my mind to make a new start Going To California with an aching in my heart. :slightly_smiling_face:​​​​​​​

#13

There is still a Blue Box example in the text on corner portfolios utilizing the risk free rate.

#14

Why are you saying they are not in the curiculum? It quite clearly is. There is a blue box on it in the curriculum

#15

Can you point out which one?

#16

Reading 17, example 2.

#17

Thanks, Magician!

#18

You’re welcome.

#19

The 2018 CFA L3 curriculum mentions corner portfolios several times and has a ‘blue box’ example around "a strategic asset allocation based on distinguishing a nominal risk-free asset.

This entire blue box problem is a sh*ttier way of presenting elements of what was previously tested via a more robust corner portfolio problem honestly.

In the example it becomes clear that you still need to know about the tangency portfolio and how to identify it. That said the fact that this exhibit puts much of the definition of a corner portfolio into the footnote on that reading is probably a sign that it is unlikely to be directly tested, and certainly not directly tested in the same way as in previous years with the calc style questions you are seeing

#20

You were not kidding about the ridiculous amount of corner portfolio questions in Schweser’s Qbank! They’re easy once you understand the concept but they’re just relatively time consuming compared to other questions which makes them suck.