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Old 04-29-2017, 05:06 AM
yfwang yfwang is offline
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Default FA Task 2 (Risk/reward)

Hello everyone,

I wish to seek advice on part 1 of task 2 for the CDEF FA.

I am confused about the Risk/reward that is mentioned in the question. Are we supposed to adopt a qualitative approach or a quantitative one with ratios included?

Hope i can get some advice from you guys out there!

Thanks
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Old 04-29-2017, 05:13 AM
trapperj trapperj is offline
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Come up with a suggestion and defend it. That's all the entire exercise is.
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Old 05-17-2017, 11:27 AM
lpsnyder lpsnyder is offline
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I think most people are confused on this as the question is pretty vague. The advice offered above it probably the best to use. Whenever I am unsure about anything in this FA (which happens frequently), I just try to choose a position and defend it based on what I learned in the FAP modules.
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Old 09-20-2017, 01:31 PM
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DOPT Machine DOPT Machine is offline
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I DNMMR'ed and this was one of the tasks they recommended needing work. I get that we are to come up with a suggestion and defend it, but I'm concerned that I'm still not giving them what they're looking for. For example, CTE(90) is a risk measure, but is suggesting and defending the use of CTE(90) an example of recommending a risk/return requirement? Or are they looking for something like "I'm willing to risk $X billion to get a 5% return"?
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Old 09-21-2017, 11:12 AM
xaznstylegrlx xaznstylegrlx is offline
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Quote:
Originally Posted by DOPT Machine View Post
I DNMMR'ed and this was one of the tasks they recommended needing work. I get that we are to come up with a suggestion and defend it, but I'm concerned that I'm still not giving them what they're looking for. For example, CTE(90) is a risk measure, but is suggesting and defending the use of CTE(90) an example of recommending a risk/return requirement? Or are they looking for something like "I'm willing to risk $X billion to get a 5% return"?
I feel like I DNMMR for the same reason. I used CTE, but I think that is a risk metric and they asked for the "risk/return metric". I think they really mean pick a return metric and explain why, then pick a risk metric and explain why. I've seen some people use a ratio of mean vs. CTE, which I did have in my memo, but I still DNMMR so I think I needed to put more focus on the return justification.

Last edited by xaznstylegrlx; 09-21-2017 at 11:49 AM..
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Old 09-21-2017, 09:32 PM
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DOPT Machine DOPT Machine is offline
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Thanks aznstylegrl, I will try that approach. In fact I'm pretty set on my revision for the risk metric. For the return metric, I didn't actually recommend a metric, but rather interpreted the task to mean that they want us to recommend a minimal acceptable return over the 30-year horizon. Now, a long term or short term yield may indeed be a metric to justify, but I now see why doing what I did was not what they were looking for, and how my revision doesn't even need to involve a calculation.
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Old 09-22-2017, 11:56 AM
ActuarialHusker ActuarialHusker is offline
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The most common risk measure used in both hedge fund and mutual fund evaluations is standard deviation.
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Old 09-22-2017, 12:25 PM
CatEight CatEight is offline
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Why do you use risk/reward metrics to explain risk/reward requirements based on the material? Which statistics do you wan to use and why? How do you explain the range you choose? How is the outcome based on your selection....

Basically, the metrics you choose should be a combination of some statistics you have.

Hope a little bit helpful for you.
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Old 10-05-2017, 11:35 AM
jtom jtom is offline
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I have read all the material and every post available and still not sure about this.
Could we say, for example, x% equities based on risk appetite ( very subjective not quantitative reason)...and run all possible % for treasuries and bonds and choose the ones that min risk and max reward?
Is it wrong to use the statistics without any combination?
Thanks
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Old 10-08-2017, 10:55 AM
Z3ta Z3ta is offline
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Quote:
Originally Posted by trapperj View Post
Come up with a suggestion and defend it. That's all the entire exercise is.
Quite patronizing. I think what youre trying to say is I have no idea why I passed. Im fairly certain the vast majority of people who failed needing most improvement on task 2 believed they made a suggestion and defended it.

I believe the SOA has a checklist of reasons to fail papers that is more specific than not answering the question well as stated. Neither people who pass nor fail have a clue what those reasons are.

This whole thing is unproductive and unethical and unfortunately as soon as people make it through they tend to look at the FAP course through rose-colored glasses. Actuaries need to start communicating displeasure with this process so our credentials are less arbitrary.

Lets say you are correct that the entire point of everything in the FAP course is simply to learn to make suggestions and adequately defend them. Why do we need 6 mini projects and 2 assessments to prove that? Id be very interested to learn more about what the CAS does in place of the FAP. I suspect its far better.
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