Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,922 documents
The document derives allocation weights for two ETFs tracking the same index with different daily leverage: one returns negative one times the index move, and the other returns 1.5 times the move. It assumes the full portfolio is invested across the two…
The discussion examines whether a higher expected value at the same variance guarantees weak stochastic dominance. The answer is no in general: knowing only the first two moments does not establish the ordering of arbitrary return distributions. The argument…
The discussion outlines ways to compare portfolios produced by Sharpe ratio optimization before investing. When portfolios were built using the same objective, their Sharpe ratios can be compared directly, but an in-sample ratio is only an estimate and…
The document explains how to estimate a credit index’s market beta when the index’s spread sensitivity, expressed as CD01, varies over time. It starts from a linear relationship between spread returns and market returns. If index returns scale with spread…
The document raises a portfolio-management classification question: whether rules-based investing counts as passive when passive management is understood as replicating an index and active management as deviating from one. It contrasts that framing with an…
The document considers how to calculate an asset’s marginal contribution to tracking error relative to a benchmark. Its answer reframes active risk as the volatility of a combined position consisting of the portfolio and a short position in the benchmark. In…
The document considers ways to classify and compare an equity fund universe. Suggested approaches include estimating fund exposures through regressions against style or sector indices, using tracking error or benchmark regression to identify funds that…
The document introduces specialised lending as corporate lending repaid primarily from income produced by a financed asset. Its example is a mall held through a special-purpose vehicle, where rental income services the debt. It asks whether these…
The document discusses simulating asset returns with non-normal marginal distributions while preserving dependence between assets. It notes that standard univariate samplers can generate Weibull or lognormal draws, and describes inverse transformation as a…
The document describes a simple way to allocate an annual incentive fee across monthly returns. It defines cumulative return through each month, then measures the portion above a zero baseline, called the above-water cumulative return. The fee attributed to…
The document explains a T+H lag in factor forecasting: when characteristics observed at time T are matched with returns over a later horizon H, the newest labeled training outcomes are stale by roughly that horizon. In fast-changing markets, this can make…
The document discusses how portfolio managers obtain expected returns and the variance-covariance inputs used in portfolio theory. It describes historical performance as a common basis for estimating variances and covariances, while expected returns may be…
The document considers how to optimize a portfolio for the Treynor ratio or Jensen’s alpha, in contrast with maximizing the Sharpe ratio. Its central point is that maximizing either measure by itself can produce a degenerate solution: allocate all weight to…
The document asks how European authorities handled banks during the sovereign debt crisis, distinguishing smaller institutions allowed to fail from systemically important banks that received support. It seeks named examples of failures and bailouts, the…
The document asks why an optimized portfolio can produce equal Value at Risk (VaR) and Conditional Value at Risk (CVaR), particularly under low risk aversion, and whether this equality is informative. The answer defines CVaR, also called expected shortfall…
The discussion addresses how to model a covariance matrix when asset volatilities and correlations can change over time. It identifies multivariate GARCH as a family of models for joint volatility and covariance dynamics. A central practical drawback is…
The discussion considers how to assess whether a candidate holding improves diversification in an existing portfolio. One proposed method combines pairwise correlations with position weights to form a weighted average correlation, then compares that measure…
The note asks whether a bank's internally estimated economic capital can satisfy a regulatory capital requirement, or whether the amounts must be added together. It presents two perspectives: one says the answer depends on jurisdiction and regulatory rules,…
The note describes calculating the annualized return of a private equity investment using its dated contributions, distributions, and a remaining valuation. It explains that the cited GIPS treatment for private equity uses internal rate of return, unlike the…
The note explains why project cash flows in a discounted cash flow analysis are generally evaluated without separately subtracting loan interest or principal payments. The answer distinguishes operating cash flows from the financing arrangement: if a stated…
The document is a brief response to an economics student seeking a book on robust optimization, with applications to economics and finance. The recommended text is Robust Optimization by Ben-Tal and coauthors. The answer offers it as a possible starting…
The document asks which interest rate curve should be shocked when valuing interest-sensitive assets under Solvency II. The questioner understands that future asset cash flows are discounted with shocked rates, but is uncertain whether to shock risk-free…
The document asks how to rank portfolio assets by momentum indicators for use as views in an Entropy Pooling framework. It describes Entropy Pooling as a way to blend views into a prior distribution, and relates the approach to Black–Litterman. Rate of…
The discussion distinguishes a risk-free asset from a risk-free portfolio and explains that a simplified model may assume an asset with a deterministic return. In practice, central government instruments or money-market rates are often used as…