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Old 03-09-2018, 01:03 AM
rjhav1025 rjhav1025 is offline
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Default CDEF Task 2 Sharpe Ratio

Has anyone passed FA using the Sharpe Ratio as a risk/reward requirement? My risk/reward requirement was to have CTE(90)<X, Std Dev<X, and Sharpe Ratio maximized. I DNMMR'd with Tasks 2 & 5 needing the most work. I'm contemplating getting rid of Sharpe Ratio now. Although, I completely agree that it's a real risk/reward metric, I really don't know how to improve Task 2.
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Old 03-09-2018, 08:38 AM
davesned29 davesned29 is offline
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The Sharpe Ratio (especially if you mentioned it by name) measures rates of return in the numerator. That isn't exactly appropriate given the model used. I modified the numerator appropriately. See the long Task 2 thread for details.
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Old 03-09-2018, 08:53 AM
jxl886 jxl886 is offline
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i agreed. Sharpe ratio is not very appropriate for this task, and also, pay attention that the return we are talking about here is to max the investment return, which means minimized the mean or max or min, so if you are using sharpe ratio, be careful with the direction here. since you want both the cost and the risk minimized in this case. risk/return matric is a must, but it doesnt have to be one metric shows both, it could be "minimize the cost while keeping the risk at ____ level". so you just need to explain what you use to measure risk and ruturn, and why you set the risk limit at this level.
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Old 03-09-2018, 08:55 AM
jxl886 jxl886 is offline
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also, I think the communication part is more important than what you use. make sure you have explained your approach clearly, don't assume the reader knows anything about the topic.
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Old 03-09-2018, 08:56 AM
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Sir Issac Sir Issac is offline
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I think you’re using too many metrics. Keep it simple. It would be easier for you to explain and easier for the grader to understand. Just pick one risk/return metric and justify it
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Old 03-09-2018, 08:59 AM
cjw002 cjw002 is offline
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Don't overthink/over-complicate it. Using Sharpe Ratio is doing both.
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Old 03-09-2018, 09:13 AM
sungx88 sungx88 is offline
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final assessment is all about thinking well-within the box.. if they didn't ask for it or suggest it, don't use it. instead, focus on writing very directly/thoroughly/simply.
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Old 03-09-2018, 09:40 AM
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Quote:
Originally Posted by cjw002 View Post
Don't overthink/over-complicate it. Using Sharpe Ratio is doing both.
I donít think so. Sharpe ratio can be explained simply. But doing sharpe ratio with other things is too much imo
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Old 03-09-2018, 09:42 AM
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I'm probably in the minority in thinking what you did was fine. I'm guessing there is something lacking in your writeup and justification of it.

I didn't use Sharpe ratio though.
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Old 03-09-2018, 09:56 AM
rjhav1025 rjhav1025 is offline
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Quote:
Originally Posted by Sir Issac View Post
I donít think so. Sharpe ratio can be explained simply. But doing sharpe ratio with other things is too much imo
Hmm, you kind of have to use Sharpe Ratio with other things, no? So I used Sharpe Ratio to select one investment strategy, because setting the requirements to CTE<X and Std Dev<Y will give me multiple investment options. In this case, the maximum Sharpe Ratio would narrow the possibilities to 1.
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