Page 95 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
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Session Unit 3:
10. Common Probability Distributions
LOS 10.m: Define shortfall risk, calculate the safety-first ratio, and select an optimal portfolio using Roy’s
safety-first criterion, p.229
Shortfall risk is the p that a portfolio value or return will fall below a particular (target)
over a given time period. Roy’s safety-first criterion – pick one which minimizes
return p below threshold level:
Given normally distribution of portfolio,
then RSFC is:
Remember (Sharpe Ratio, p150?)
Compare to z:
Observations?
