Risk Tolerance Criteria in Client Asset Allocation


CFA book 2 page 198. Example where they’re eliminating potential asset allocations based on a given client risk criteria. in this example, her risk criteria is a worst case -10% annual loss. What are the calculations behind them determining the expected worst-case return of each asset allocation? I see the theory on the prvious page says you deduct two standard deviations from the port expected return…but what’s the math that takes you from (ie: allocation A) from a 9.9% expected return to a worst case return of -8.9%?



9.9 - 2*9.4 = -8.9

Got it. Simple. Thanks.