Characteristics of liabilities relevant to asset allocation CFA Flashcards - Medical Study Cards
Master Characteristics of liabilities relevant to asset allocation with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Characteristics of liabilities relevant to asset allocation Flashcard Deck - 10 Cards
Flashcard 1: Asset allocation - 120 Minus Your Age
Answer: 120 − age = % allocation to equities, with the remainder going to fixed incomes
Flashcard 2: Asset Allocation Approaches: Asset-only
Answer: focuses on asset return and standard deviation.
Flashcard 3: Asset allocation - Risk Parity
Answer: Each asset class contributes the same amount to the total portfolio risk
wi x Cov(ri, rp) = (1/n)σp2
Flashcard 4: Buy-and-Hold Strategies
Answer: - Passive do-nothing strategy
- Floor = amount invested in t-bills
- Outpeforms Constant Mix in trending markets
- Remains neutral in flat and oscillating markets
- Target stock proportion = actual stock proportion (m=1)
- Results in linear payoff curve
Flashcard 5: Rebalancing Strategy Risk
Answer: Constant Mix
- Risk tolerance varies proportionally with wealth
- Constant relative risk tolerance
Buy and Hold
- Increase with wealth but is passive
CPPI
- Increases with wealth but is active
Flashcard 6: Three Rebalancing Strategies
Answer: 1. Buy and Hold
2. Constant Mix
3. Constant Proportion
Flashcard 7: Rebalancing Disciplines
Answer: Calendar Rebalancing
- Periodic rebalancing to target weights
- Simple approach, no continuous monitoring required
- Allocations could differ significantly between rebalancing dates
Percentage-of-Portfolio Rebalancing
- Rebalancing thesholds or trigger points stated at % of portfolio value
- Requires frequent monitoring
- Tighter control of divergence from target allocation
Flashcard 8: Constant-Mix Strategies
Answer: - Reacts to market movements
- Target investment in stocks = m x portfolio value
- Where 0\<m\<1
- Decrease stock proportion when markets increasing, increase when they are decreasing
- Maintains portfolios systematic risk exposure
- Underperforms other two in upward trending markets due to selling winners
- Outperforms other two in downward due to selling losers
- Produces concave payoff curve
Flashcard 9: Rational Economic Man
Answer: Maximizes utility given budget constraints & available information. Governed by:
- Perfect Rationality - Ability to reason and make beneficial judgements
- Perfect Self Interest
- Perfect Information - Perfect knowledge of every subject
Those who challenge REM do so by attacking these assumptions.
Flashcard 10: Commodity Characteristics
Answer: - Used to manage portfolio risks
- Provide inflation hedge
- During financial and economic crisis, commodity prices tend to increase
- Determinants of commodity returns are economic cycle related demand, convenience yield and real options.
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