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waha
05-12-2008, 06:11 PM
Want to throw in another one.
One of the case study problems was asking to construct the benchmark.
Did you guys go through each asset category for that particular product line (was that accumulation annity or something else?) in the case study and choose one from the list given in the problem that resembles the duration and yield closest and then weight them based on book value? This was what I did and I magically came up with a weighted duration of 6.6 which is almost exactly (maybe exactly) the duration for that asset portfolio.

sundwarf
05-12-2008, 06:17 PM
From the list of possible benchmarks we are given I picked the benchmarks with closest durations to the corresponding asset classes in the portfolio. The weights I used are the same as the weights in the portfolio.

personally I think there are more than 1 answer for this question, it's just depends on how we justify our answers.

Car'a'carn
05-12-2008, 06:25 PM
personally I think there are more than 1 answer for this question, it's just depends on how we justify our answers.

I agree, we were given plenty of choices. Poor graders :wink:, imagine going trough all different calcs to make sure they are correct.

waha
05-12-2008, 07:29 PM
I agree, we were given plenty of choices. Poor graders :wink:, imagine going trough all different calcs to make sure they are correct.

Are you sure? I am trying to paint a picture in my head that the grade is punching the SOA approved calculator.

namssa
05-12-2008, 08:24 PM
I think that this question along with the part asking you to analyze the assets in the portfolio are so vague that they would have to give points for anything that you wrote. With the benchmark problem, I remember thinking that if I just decided to use an absolute return benchmark of 5%, then that should technically be a correct answer.

Car'a'carn
05-12-2008, 08:40 PM
I think that this question along with the part asking you to analyze the assets in the portfolio are so vague that they would have to give points for anything that you wrote. With the benchmark problem, I remember thinking that if I just decided to use an absolute return benchmark of 5%, then that should technically be a correct answer.

I do not think they were looking for any benchmark. IIRC the question asked about appropriate benchmark.

The Smokin' Cracktuary
05-13-2008, 08:12 AM
I didn't do a single calculation on this one. I just avoided the whole thing and listed the steps in detail to constructing a custom-security based benchmark.

I figured it may not get me full credit, but at least it will prove I read it, and....and.... I didn't even have to touch my calculator. Sweet!!!

The next part where it asked you to compare yields was a bit trickier after that, so I just put the steps in portfolio measurement relative to a fixed income benchmark (i.e. - cell matching, multifactor model analysis, etc.) also in some detail.

Here's hoping for partial credit.

Mr. BoH
05-13-2008, 08:48 AM
For the "compare yields" part, what did people write?

I just put that the yield for XXX was higher than the yield for YYY. Which seemed kind of dopey, so I added a sentence or two about how a higher yield implied more credit risk.

waha
05-13-2008, 09:41 AM
I believe that I used the book value of each asset category to weight the yield and ended up with almost the same yield of the recommended benchmark as that of the existing asset portfolio and just ended it there.

Caramel
05-13-2008, 06:49 PM
From the list of possible benchmarks we are given I picked the benchmarks with closest durations to the corresponding asset classes in the portfolio. The weights I used are the same as the weights in the portfolio.

personally I think there are more than 1 answer for this question, it's just depends on how we justify our answers.

I did the same as you, for every asset category, I chose a benchmark that has the closest yield, duration and asset type and % of mix (50% investment grade, 50% non-investment grade, for example). Then to construct a total benchmark for the entire portfolio, I use the actual weight of each asset category.

It turns out that the actual portfolio tracked the customized benchmark pretty well, short of only 0.2% or something like that for rate of return.

Caramel
05-13-2008, 06:52 PM
I think that this question along with the part asking you to analyze the assets in the portfolio are so vague that they would have to give points for anything that you wrote. With the benchmark problem, I remember thinking that if I just decided to use an absolute return benchmark of 5%, then that should technically be a correct answer.

Ala! An absolute return benchmark of 5%? Tu as du courage! (you have gut!)

What is the properties of a valid benchmark?
1) unambiguous
2) measurable in frequent basis
3) investable
4) reflect current investment opinions
5) specified in advance
6) owned (accepted and understood) by portfolio manager

Because they ask the properties of a valid benchmark in part b), I was reluctant to just throw an absolute benchmark as it violates almost all of the properties that I just dropped down on the examination paper.

namssa
05-13-2008, 07:58 PM
Ala! An absolute return benchmark of 5%? Tu as du courage! (you have gut!)

What is the properties of a valid benchmark?
1) unambiguous
2) measurable in frequent basis
3) investable
4) reflect current investment opinions
5) specified in advance
6) owned (accepted and understood) by portfolio manager

Because they ask the properties of a valid benchmark in part b), I was reluctant to just throw an absolute benchmark as it violates almost all of the properties that I just dropped down on the examination paper.

I should note that I didn't actually use the absolute benchmark. I actually did something close to what sundwarf described. It just crossed my mind to use an absolute benchmark when I was thinking about the wide range of correct answers to that question.

FoxtrotFool
05-13-2008, 08:35 PM
You missed one... Valid Benchmark has a nice nmeumonic....
"SAMURAI"
Specific in advance
Appropriate
Measurable
Unambiguous
Reflect Current Invest Opinion
Accountable (Owned)
Investable

I took a mix of various benchmarks, matching the appropriate durations... Don't know if that's what they are looking for.

Mr. BoH
05-13-2008, 08:43 PM
You missed one... Valid Benchmark has a nice nmeumonic....
"SAMURAI"
Specific in advance
Appropriate
Measurable
Unambiguous
Reflect Current Invest Opinion
Accountable (Owned)
Investable

I took a mix of various benchmarks, matching the appropriate durations... Don't know if that's what they are looking for.

That's exactly what I did also. Except my acronym was "IOU MARS". And now I'm bitter because "SAMURAI" is way cooler. Except I'd probably forget how to spell it.