SOA Sample Q #21

[jvaldez84]

I apologize if this question has been asked on this board as I was unable to find it. Can anyone explain this to me?

[jhp8]

Originally Posted by jvaldez84

I apologize if this question has been asked on this board as I was unable to find it. Can anyone explain this to me?

Here is how I do this particular one, but this may not be a good technique; please chime in with your opinions

Since the time periods of equal length (7 to 9 vs 11 to 13); they are directly proportional:

.04/.05 * (.06) = .048

[Eagle.K.Y]

in CIR, Sharpe and sigma are both depending on sqrt(r), and alpha(r) = Sharpe * sigma + r, that is, alpha(r) is based on r. so alpha(0.04)/0.04 = alpha(0.05)/0.05

[ashley_n_h]

It's discussed here:
http://www.actuarialoutpost.com/actu...39#post3261739
towards the end.

This is the formula I use for it:



Just make sure that when you calculate you use

[jvaldez84]

Ashley_n_h, I do not understand how this formula can be used to solve problem 21.

[ashley_n_h]

So for CIR, the sharpe ratio is this:



Since 9-7=13-11 =2, The B's for both and are equal. Also, is the same. So if you use the equation I posted above we have:



Which simplifies to:


plug in and you get

[jvaldez84]

Might be another stupid question but I thought CIR was a function of r.

[ashley_n_h]

Originally Posted by jvaldez84

Might be another stupid question but I thought CIR was a function of r.

It is...

[jvaldez84]

Nevermind I got it.