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View Full Version : A problem of Litterma, any one can help me?


yueZHAO
01-20-2008, 10:56 PM
In the chapter 10, a formula for RACS:

oooooooooE[S(t+1)-S(t)ラ(1+R(f))]
RACS(t)=——————————————
oooooooooooo σ(t)ラS(t+1)

But the solution of NO. 10 in APM2007, it calculates the "Excess return" as [S(t+1)-S(t)ラ(1+R(f))]/S(t), not as [S(t+1)-S(t)ラ(1+R(f))]/S(t+1). Why?

By the way, the Return (Surplus 1): 50%; 40%;-12.4%;-13.6%; 8.2%. The following solution do not use it, therefore I wonder why calculate the Return (Surplus 1)?

yueZHAO
01-22-2008, 10:01 PM
Does anyone can help? Thanks.

Laurelinda
01-23-2008, 01:28 PM
Sorry, I haven't read any of Litterman yet. Would you please spell out what RACS means for me? I'll try to help, but I'm not sure what the question is.

yueZHAO
01-23-2008, 09:40 PM
ok.
oooooooooE[S(t+1)-S(t)ラ(1+R(f))]
RACS(t)=—————————————— is a formular in Chapter 10 of Litterma
oooooooooooo σ(t)ラS(t+1)
(you can find it in the formulae sheet)

I find the solution to No. 10 in APM exam that took in May,2007 , which can be find on soa web, is inconsistent with this formulae.

rekrap
01-24-2008, 10:30 AM
ok.
oooooooooE[S(t+1)-S(t)ラ(1+R(f))]
RACS(t)=覧覧覧覧覧覧覧 is a formular in Chapter 10 of Litterma
oooooooooooo σ(t)ラS(t+1)
(you can find it in the formulae sheet)

I find the solution to No. 10 in APM exam that took in May,2007 , which can be find on soa web, is inconsistent with this formulae.

Solutions for the exam are model solutions, not perfect solutions. There may be inconsistencies, such as this one. I believe this formula is in the formula sheet, so the exam taker may have copied it hoping for some points.

Bell
01-25-2008, 06:26 PM
Solutions for the exam are model solutions, not perfect solutions. There may be inconsistencies, such as this one. I believe this formula is in the formula sheet, so the exam taker may have copied it hoping for some points.

RACS: Risk Adjusted Change in Surplus.

While Sharpe Ratio only looks at the performance of investment as measured the excess investment return over the riskk free rate per unit of risk (Mu- Rf over sigma), the (RACS) looks measures investment performance relative of liabilities.

Hope this helps.

yueZHAO
02-03-2008, 05:34 AM
Thanks a lot.