Safety-First

How is the Safety-First ratio calculated? I know this sounds like a stupid question, but in Schweser v1 m1, it seemed like the excess return was being divided by the sharpe ratio…

search the forum. or read below. return - Rmin / SD (bah - there was a hot chick on tv…turning it off now). not to be confused with sorintino’s.

isn’t safety first = R - Rmin / SD?

RMIN can sometimes be RF, use what they give you

Roys Safety First = (Return - Minimum Return) / Standard Deviation: Measures excess return above some minimum threshold set by the investor per unit of risk Sharpes = (Return - Risk Free Rate) / Standard Deviation : measures excess return above the risk free rate per unit of risk

I am slightly confused, if the minimum return equals the rf, wouldn’t the safety first ratio not be exactly the same as the Sharpe?

in that scenario it would be…

no…I thought so to…but after relooking at it, the safety is -2%, Ernie’s max loss statement. Threw me for a bit of a loop at first too as it looked they were implying a T-Bill min return.

if that’s the case, then should the Rmin be minus 2 or positive 2. The solution has it as positive two, but Ernie has stated it in negative terms.

Retrun minus min return. if Ernie’s min return is -2 then the formula becomes Return - (-2) / SD = Return + 2 / SD algebra, god love it.

Argh, I was looking on the wrong part of the page. Thanks for clearing it up.

I totally didn;t pick up on this, as noted in a new post, I was looking for a statement of min return, not max loss…argh