Rebalancing Bands Math

[cpk123]

i meant this sentence in the vignette

given the allocations shown in Exhibit 1, with tolerance bands for corridor widths set at ± 10% of the target allocation.

[Thiru_Cumaran]

@cpk123

i meant this sentence in the vignette

given the allocations shown in Exhibit 1, with tolerance bands for corridor widths set at ± 10% of the target allocation.

would I be correct in saying that, when the question mentions “of the target”, we have to multiply the percentage by the allocation, but if it says “around the target”, we’d have to just add/subtract?

[Blackou]

@MrSmart

I’d be surpised if they do that again.

I would not, since it is also presented as % of target allocation in the CFAI text.

See cpk123 post above that comes direclty from the CFAI reading ( § 3.2.2)

[MrSmart]

@Blackou

@MrSmart

I’d be surpised if they do that again.

I would not, since it is also presented as % of target allocation in the CFAI text.

See cpk123 post above that comes direclty from the CFAI reading ( § 3.2.2)

It’s one paragraph where they illustrated an ‘ad hoc’ approach.

All the BB and EOC examples, not to mention 3rd party, use the interval band.

If they do the multiplicative TA, then I now know what to look for. It should be %P of the TA, and not %P band/corridor/width/portfolio

[olivia_x]

Not sure if i understand the long lead clearly - we should by default use % of the band to reach the bandwidth? This would make sense as in the curriculum it only introduces percentage rebalance besides calandar rebalance.

[salam]

@MrSmart

@Blackou

@MrSmart

I’d be surpised if they do that again.

I would not, since it is also presented as % of target allocation in the CFAI text.

See cpk123 post above that comes direclty from the CFAI reading ( § 3.2.2)

It’s one paragraph where they illustrated an ‘ad hoc’ approach.

All the BB and EOC examples, not to mention 3rd party, use the interval band.

If they do the multiplicative TA, then I now know what to look for. It should be %P of the TA, and not %P band/corridor/width/portfolio

Mr. Smart. Which EOC or BB question are you talking about?

The BB question and the EOC questions, in the textbook, all use Target allocation ± % of Target

Which question are you referring to that uses additive? I am curious to know.

Please do not mislead others who check the forums for doubts and clarifications, without fully checking your facts.

[MrSmart]

@salam

@MrSmart

@Blackou

@MrSmart

I’d be surpised if they do that again.

I would not, since it is also presented as % of target allocation in the CFAI text.

See cpk123 post above that comes direclty from the CFAI reading ( § 3.2.2)

It’s one paragraph where they illustrated an ‘ad hoc’ approach.

All the BB and EOC examples, not to mention 3rd party, use the interval band.

If they do the multiplicative TA, then I now know what to look for. It should be %P of the TA, and not %P band/corridor/width/portfolio

Mr. Smart. Which EOC or BB question are you talking about?

The BB question and the EOC questions, in the textbook, all use Target allocation ± % of Target

Which question are you referring to that uses additive? I am curious to know.

Please do not mislead others who check the forums for doubts and clarifications, without fully checking your facts.

Page 90, first example in the text. Page 92 BB. Page 107 Q5. Page 110, Q9, Q10.

A better question would be, is there another example of the multiplicative ad hoc approach?

[cfal3letsgo]

yea this is confusing as hell after reading that old question. there isn’t a clear indication why you use the % change and not an absolute add/subtract 10%.

part of me thinks they used to use the % change (ad hoc) as opposed to add/subtract the corridor and then switched up the curriculum in recent years. that would explain the old question causing the confusion and the passage in the text that states the ad hoc method is openly criticized.

can someone clear this up?

maybe someone with 2009/2010 cfai level 3 text books can look and see if both methods are discussed…

[MrSmart]

Everything you need to know has been discussed previously.

[cfal3letsgo]

@MrSmart

Everything you need to know has been discussed previously.

Could you summarize it as to when to use the % change or the addition? I’m still lost thanks bud

[MrSmart]

@MrSmart

If they do the multiplicative TA, then I now know what to look for. It should be %P of the TA, and not %P band/corridor/width/portfolio.

[kos]

Schweser mentions this “ad hoc” approach too.

"For example. assume the manager sets a 40% target allocation (T) for domestic equity and a 10% maximum percentage change §. The resulting corridor for domestic equity is 40% ± 0.10(40%) = 40% ± 4%; that is, a corridor of 36% to 44% for the allocation to domestic equity…………………… The value of P in the corridor calculation of 10% is an ad hoc value – we could have just easily used 5% to establish the corridor values”

I imagine that if its on the exam, they would give us the actual range of percentages as they did on a later exam question. Atleast I hope so.

[Mosstastic]

Didn’t read through all the comments in this thread, but also wanted to point out that in the 2014 CFA AM mock, they’re using the additive approach of the bands, what most of us are familiar with. In fact, they actually had a separate column giving the ranges – maybe due to past confusion