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  #61  
Old 02-27-2018, 09:40 AM
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If you used the Sharpe Ratio, what other metrics did you set requirements on? Also, did you sensitivity test the Sharpe Ratio? Updating the risk free value each time (i.e. if you are senstivity testing inflation, the risk free value is at the same inflation). If so, my interpretation would follow along the lines of:

Increase: "better reward to risk ratio under these market conditions"
Decrease: ^ opposite
I personally didnít even sensitivity test my risk/return metric. I sensitivity tested the metric that I chose for the recommended tax per employee since this is what will be impacted by assumption changes
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  #62  
Old 02-27-2018, 09:43 AM
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Hmmmm... okay, that makes sense. I guess as long as you test the metrics used and state that you should be fine?
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  #63  
Old 02-27-2018, 02:42 PM
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If I were to do it again I personally would incorporate Sharpe Ratio instead. I would maximize the following ratio under a certain requirement for equity allocations (higher equities bring more volatility year over year and CDEF cannot afford short term losses):

(Average cost per employee from 100% treasuries - average cost per employee from a certain portfolio mix) / standard deviation

(Some people told me they're using CTE in this ratio instead of mean which also makes sense to me since you would be using the mean from worst case scenarios opposed to the general mean)

By maximizing this ratio I would be attaining the lowest possible cost per employee when comparing the cost per employee attained from the risk free rate while taking volatility into account. It's similar to the sharpe ratio example I gave but using cost per employee instead.
A couple random notes:
1) I just started my re-take. Love this thread and, if I happen to pass this time, I may kiss Sir Isaac right on the mouth. Not that I want him to root against me, but get ready just in case. Awesome contribution. Can't overstate how appreciated it is.

2) See the bolded section above. I tried this, but my ratio was working in the opposite direction than I anticipated. May have something to do with the correlation b/w SD and CTE figures. Had an incredibly frustrated post all typed up here and the light bulb hit. Changed it to Mean and the numbers work as I would expect.

Alright, back to work. Just wanted to type that blurb in case anyone else is having the same issue. Good luck all!!
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  #64  
Old 02-27-2018, 04:18 PM
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i didn't even use sharpe ratio or anything i just mentioned risk/return and how we want to minimize CTE/and mean and how theres a tradeoff and discused the pros/cons.

i don't know if this approach is too minamalsitic though

i ended up testing about 10 scenarios though
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  #65  
Old 02-27-2018, 05:50 PM
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Originally Posted by Hawkey View Post
If you used the Sharpe Ratio, what other metrics did you set requirements on? Also, did you sensitivity test the Sharpe Ratio? Updating the risk free value each time (i.e. if you are senstivity testing inflation, the risk free value is at the same inflation). If so, my interpretation would follow along the lines of:

Increase: "better reward to risk ratio under these market conditions"
Decrease: ^ opposite
I think Sir Isaac suggested using 100% treasuries return as the risk free rate. Since we aren't given portfolio level return metrics, only the contribution requirement (be it mean, SD, VAR, CTE, etc.)
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  #66  
Old 02-27-2018, 06:48 PM
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i didn't even use sharpe ratio or anything i just mentioned risk/return and how we want to minimize CTE/and mean and how theres a tradeoff and discused the pros/cons.

i don't know if this approach is too minamalsitic though

i ended up testing about 10 scenarios though
That's what I did. I DNMMR'd, and don't know if (or how much) this played into that. But I was given Tasks 2 and 5, so wanted to try another approach.

That said, I think I heard someone on here who did exactly that and did MMR, so who knows.
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  #67  
Old 02-27-2018, 08:00 PM
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That's what I did. I DNMMR'd, and don't know if (or how much) this played into that. But I was given Tasks 2 and 5, so wanted to try another approach.

That said, I think I heard someone on here who did exactly that and did MMR, so who knows.
Yeah me neither imo but for atleast this attempt, i can't justify something else as well as i did... ugh.

I'll let you know how it goes.
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  #68  
Old 02-27-2018, 08:06 PM
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i'm thinking that task 2 is basically a writing exercise and pretty much anything can pass as long as you justify it.

although, who knows. maybe I didn't pass task 2, but passed everything else to mmr overall. there is always that chance.
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  #69  
Old 02-27-2018, 08:06 PM
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i'm convinced that task 2 is basically a writing exercise and pretty much anything can pass as long as you justify it.
thats what im hoping! fingers crossed
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  #70  
Old 02-27-2018, 08:33 PM
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i'm thinking that task 2 is basically a writing exercise and pretty much anything can pass as long as you justify it.

although, who knows. maybe I didn't pass task 2, but passed everything else to mmr overall. there is always that chance.
I donít think itís just a writing excercise (would be silly if thatís the case since thatís what task 5 is all about) but I do think if one approaches this question the best way they can from a correct technical standpoint, it will maximize their chance of passing.
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