chapter 4 portfolio management

investor types:

pension fund (defined benefit) risk tolerance high long duration low liquidity 

banks risk tolerance low short duration high liquidity 

foundations risk tolerance high low duration low liquidity 

insurance companies risk tolerance low non-longevity insurance: low duration high liquidity 

portfolio theory

1. Markowitz efficient frontier risk return model

2. Sharpe CAPM capital allocation line (CAL) most efficient one: tangent to efficient frontier 

CAL vs. CML(capital market line)

E(Rp) = Rf + [E(Rm) - Rf]/dM * dp

SML vs. CML

Portfolio evaluation 1-2 cml 3-4 sml(related to pricing)

1. Sharpe ratio slope of CAL: (Rp-rf)/dp higher Sharpe ratio means better performance.

2. M^2 portfolio outperforms market M^2 = dM* (E(Rp) - Rf)/dp - [E(Rm)-Rf]

greater the shoe ratio, greater M^2 is.

3. Treynor measure = (Rp-rf)/beta p - measure of systematic risk  单位系统性风险的超额收益 横坐标为beta

4. jenson's alpha = rp-rf - beta p(rm-rf) - measure of non-systematic risks 

IPS

- introduction 

- statement of purpose

- statement of duties and responsibilities

- procedures

- investment objectives

- investment constraints

- investment guideline

- evaluation and review

- appendices