Some follow-up questions from Schweser, v1, exam1 pm 14.1 “International bond portfolio duration management has been made easier through the increasing availability of strip markets” - don’t recall seeing it anywhere :(. 16.4 “Many private equity investors create their own benchmarks” - CFAI text says so, but it seems as a pretty hard thing to do. Any comments? 17.4 Special risk budgeting computation, termed individual manager selection risk, that is calculated by … © summing asset manager’s tracking errors relative to their benchmarks within the tactical asset allocation How can you sum tracking errors? Tracking errors calculated as standard deviations??? 17.5 Surplus at risk - can anybody point me to calculation of Surplus at Risk either in CFAI Readings or Schweser? I can’t find it. Thanks!
14.1 - strip markets are essentially zero coupon bonds which makes duration management easier 16.4 - creating a benchmark doens’t have to be hard. Say i manage an internation equity portfolio (internation generally = canada + us)…i could create my own benchmark say of a blended 50% S&P/TSX and 50% S&P 500…custom benchmark created! 17.4 - tracking risk = SQRT ((weight1)^2(tracking error1)^2 + ((weight n)^2(tracking error )^2)) 17.5 - look near the VAR section i believe.
14.1 - thanks, good point 16.4 - creating custom bm is not difficult for equity or anything else that’s actively traded and prices are available. Private equity is a different story though… 17.4 - your calculation is valid, but answer just states summing tracking errors - that’s not valid!