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FINANCIAL RISK
MANAGER
FORMULA SHEETS
FRMQB Complete Edition
Financial Risk Manager FRM Formulas

FRM Formula Guide

In preparing for your FRM Exams, we always encourage students to plan ahead so that no time will be
wasted in trying to cover all the necessary areas before exam day and that adequate time will be
available for practicing exam questions.

Be sure to know the sectional percentage weightings and plan accordingly. In addition to this, spend a
bit more time on your weak subject areas to better understand the necessary concepts and practice
more questions on these problematic areas.

Please use the following information only as a general guide.

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Financial Risk Manager Formulas

FRM Examination 1

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Foundations of Risk Management

Correlation coefficient between two Securities:

Correlation coefficient = Covariance between Security A and Security B

(Standard Deviation of Security A x Standard Deviation of Security B)

Variance of Two Securities

Variance = (WeightA)2 x (Standard Deviation of A)2

+
(WeightB) x (Standard Deviation of B)2
2

+
( 2 x Correlation CoefficientAB x Standard Deviation of A x Standard Deviation of B x WeightA x WeightB )

Perfect Positive Correlation

ρ=1

Perfect Negative Correlation

ρ = -1

Standard Deviation

= (Variance)0.5

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Risk Adjusted Ranking

Based on the Morningstar Rating System, an investment fund’s risk adjusted ranking may be
calculated by:

( Fund Return / Average Peer Return ) – (Fund Risk / Average Peer Risk)

Sharpe Ratio

= (Rp – Rf) / σp

Where:

Rp Portfolio Return

Rf Treasury-Bill Returns (or the Risk Free Rate)

σp Portfolio Standard Deviation of Return

Sortino Ratio

= Return on Portfolio – Minimum Accepted Return

Standard Deviation of Returns Below Minimum Accepted Return

Treynor Measure

= (Return on Portfolio – Risk free rate) / Portfolio Beta

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Jenson’s Alpha

= Return on Portfolio – CAPM predicted Return

Information Ratio

= Return on Portfolio – Benchmark Return

Tracking Error

A portfolio’s beta using the respective weightings:

Portfolio beta = w1R1 + w2 R2 + w3 R3

Portfolio Expected Return

= Rf + R(Rm – Rf)

Expected Return (Capital Asset Pricing Model, CAPM)

We recall the CAPM formula:

Expected Return, ER = Rf + β*(Rm – Rf)

Now the part of the formula “(Rm – Rf)” is actually termed the “risk premium”

Thus, expected return on the security will be:

= Risk Free Rate + [ Security’s Beta *( Equity Risk Premium) ]

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Adjusted Exposure

= Outstandings + (Unused Portion of Commitments) x Usage Given Default

Expected Loss

= AE × EDF × LGD

Where:

AE Adjusted Exposure

EDF Probability of Default

LGD Loss Given Default = ( 1 – Recover Rate %)

Expected Loss is defined as:

Exposure × (1 – Recovery Rate) × (Probability of Default)

Basis

Basis = Spot price of hedged asset – Futures price of contract.

Market Coefficient of Variation

Market Coefficient of Variation = Standard Deviation of Market / Market Expected Return

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Standard Deviation of Market

Standard Deviation of Market = Market Coefficient of Variation x Market Expected Return

Standard deviation of a two-stock portfolio

Standard deviation of a two-stock portfolio, we may use the formula:

s = [WA2σA 2 + WB 2σB 2 + 2WAWBσAσBrA,B]1/2

Correlation Coefficient

For two assets ‘A’ and ‘B’

Correlation coefficient = CovarianceAB / [(Standard deviationA x Standard deviationB)]

Rearranged, we have:

CovarianceAB = (Correlation coefficient) x [(Standard DeviationA x Standard DeviationB)]

Covariance

CovarianceAB = (Correlation coefficient) x [(Standard DeviationA x Standard DeviationB)]

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Total Risk

Total Risk = Market Risk + Firm Specific Risk

Or

Total Risk = Systematic Risk + Unsystematic Risk

Note:

“Market risk” can also be called “Systematic risk” or “Un-diversifiable risk”

”Firm Specific Risk” can also be called “Unsystematic risk”

Expected Return

Expected Return = Stock’s Alpha + (Stock’s Beta X % Market Movement)

Excess Return = Expected Return – Risk Free Rate

Correlation Coefficient

Correlation coefficient and covariance of two assets ‘A’ and ‘B’

Correlation coefficient = CovarianceAB / (Standard deviationA x Standard deviationB)

Standard Deviation of Market

Standard Deviation of Market = Market Coefficient of Variation x Market Expected Return

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Beta

The calculation of beta on a given Security A and the market

Beta = Covariance between Security A & the Market / Variance of Market Return

Value at Risk

The Value at Risk (risk adjusted) performance measure can be stated as follows:

( Portfolio Return – RFR ) / (Portfolio Value at Risk / Initial Portfolio Value )

Where RFR = Risk Free Rate

Capital Markets Line

The Capital Markets Line is from the given equation:

RF + [E(RM) − RF] / σM

Where:

Intercept = RF

Slope = [E(RM) − RF] / σM

Expected Residual Return

Expected Residual Return = Information Ratio X Residual Risk

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Covariance for Markets A and B

Covariance formula for Markets A and B:

Cov (A, B) = βA,1 βB,1 σ2F1 + βA,2 βB,2 σ2F2 + (βA,1 βB,2 + βA,2 βB,1) Cov (F1, F2)

Equation of a Straight Line

The equation of a straight line: y = m(x) + c, also expressed as:

Y = Slope (x) + Intercept

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Quantitative Analysis

Exceptions

Exceptions = ( 1 – Confidence Interval ) X ( Amount of Days )

Portfolio’s Value-at-Risk

VaR = Value of Portfolio X [ E ( R ) – z*σ ]

Or:

Portfolio Value-at-Risk

= ( 1-Day VaR ) X ( n ½ ) , with n = The Number of Days

Semi-annual comparable yield

The semi-annual pay comparable yield for a given annual pay bond will be determined by the
following relationship:

= 2 X [ ( 1 + YTM for Annual Pay Bond )½ – 1 ]

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Standard Deviation

The Standard Deviation of a given Sample Average is represented by:

‘ σ ( X ) / n½ ‘

Given that n is sufficiently large

GARCH

GARCH ( I , I ) Volatility Estimate = [ ω + α u2n−1 + β σ2n−1 ] ½

Combinations
n
Cr

= n!
( r! ) X ( n – r )!

(The amount of ways we can select r out of n)

Standard Error

Standard Error of a Mean will be given:

= ( Standard deviation ) X ( 1 / n½ )

To calculate the standard error of the sample mean, we will divide the standard deviation of the
sample by the sq root of the sample size:

sx = sd / ( n )0.5

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Standard Deviation of Returns

Standard Deviation of Returns may be calculated through the formula:

Return Standard Deviation = [ Σi ( xi – X )2 / ( n – 1 ) ] 1/2

Basis

Basis = ( Hedged Security’s Spot Price - Futures Contract Price used in Hedge )

Bayes’ Theorem

P (A / B) = [P(B/A)*P(A) ]
P( B )

P (AB) = P (B/A) X P(A)

Expectations

E (cX) = E (X) * c

E (X + Y) = E (X) + E (Y)

E (XY) = E (X) * E (Y) (Assuming both X and Y are independent of each other)

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Value of the z-statistic

The value of the z-statistic may be determined using the following formula:

( Sample Mean − Hypothesized Mean ) / ( Standard Deviation of Population / ( Sample Size ) ½

Or

z = (x – mean)/standard deviation

Sample Standard Deviation

Sample Standard Deviation = ( Sample Variance ) ½

General Regression Equation

[ Yi = b0 + b1 Xi + b2 X2 i + ei ]

Coefficient of Determination

Coefficient of Determination = ( Total Variation – Unexplained Variation ) / Total Variation

or

Coefficient of Determination = ( Explained Variation ) / ( Total Variation )

Standard Error

Standard Error = [ Sum of Squared Error / ( n – 2 ) ] ½

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Correlation Coefficient

Correlation Coefficient = Cov ( X , Y ) / ( Standard Deviation X * Standard Deviation Y )

Or

Correlation Coefficient = ( Coefficient of determination ) ½

F-Statistic

F-Statistic = MSR / MSE

= ( RSS / 1 ) / [ SSE / ( n – k – 1 ) ]

Kurtosis

K = SUM [ ( xi - μ )4 ]
σ4

Variance

Variance of X: = Sum of Squared Deviations in X / ( n – 1 )

Covariance

Covariance: = Sum of Product-of-Deviations / ( n – 1 )

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Slope Coefficient

Slope Coefficient = Cov ( X , Y ) / Var ( X )

Regression

The Regression’s Intercept Term, bo,

The Intercept Term ( bˆ0 ) = Y – ( X * bˆ) 1

Coefficient of Determination, R2

= ( Summation of Squares explained through Regression ) / ( Sum Total of Squares )

Standard Error of the Estimate

Standard Error of the Estimate ( SEE ) will be given:

= [ RSS / ( n – k – 1 ) ] ½

Where:

n = The size of the Sample

k = The Number of Independent Variables
RSS = The Summation of e2 (or the Residual Sum of Squares)

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Standard Deviation of Fund X will be given:

Standard Deviation = [ ( Xi – X )2 / ( n – 1 ) ] ½

Population Regression

Dependent Variable,

Y = (y Intercept) + (Slope Coefficient * Independent Variable) + Residual Term

Vasicek Model

The Vasicek model which defines a risk‐neutral process for r:

dr= a(b− r )dt+ σdz, Where:

 a is a constant
 b is a constant
 σ is a constant
 r represents the rate of interest

Chi Square Test

n – 1 ) s2
σ2

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F Test

F = S2a / S2b

Where:

S2a is the Variance of Sample a

S2b is the Variance of Sample b

Bond Survival Rate

= ( 1 – Marginal Mortality Rate )

Total Variation

Total Sum of Squares =

( Sum of Squares Error/Residual Sum of Squares )

+
( Sum of Squares Regression/Explained Sum of Squares )

That is,

TSS = RSS + ESS

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Risk-Adjusted Return

The Risk-Adjusted Return that will be employed in the computation of RAROC will be given:

= ( Expected Revenue) – ( Expenses ) – ( Expected Loss )

Business Line RAROC

The Business Line RAROC will be:

= Risk-Adjusted Return / Risk-Adjusted Capital

Variance

Var ( aX + bY ) = a2 Var (X) + b2 Var (Y) + 2ab * Cov (X, Y)

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Financial Markets and Products

Price of a Bond:

= [ Present Value of Coupon Payments ] + [ Principal Payment at End of Life ]

= [ SUM [ Ce –rt ] ] + P e -rT

Where:

C is the Coupon Payment

P is our Principal
t is the time to Maturity
r is the Interest Rate

Forward Pricing

Forward Pricing (for a continuous compounding rate, r) is given by:

Fo = So e rt

Where:

Fo is the Forward Price

So is the Spot Price
t is the Time of Contract

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Forward Pricing

Forward Pricing (for an annual rate, r) is given by:

Fo = So (1+r)t

Where:

Fo is the Forward Price

So is the Spot Price
t is the Time of Contract

Value of a Long Forward

Value of a Long Forward, f (for a continuous dividend yield):

f = So e –qt – K e -rt

Where:

So is the Spot Price

K is the Price of Delivery
t is the time of Payoff
q = Continuous return % / Total Asset Price

Value of a Long Forward, f (for a discrete dividend):

f = So – I – K e -rt

Where:

So is the Spot Price

I is the asset’s Present Value
K is the Price of Delivery
t is the time of Payoff

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Maximum Bond Values

Maximum Value of American Call = St

Maximum Value of American Put = X

Maximum Value of European Call = St

Maximum Value of European Put = X / ( 1 + Rf)t

Minimum Bond Values

Minimum Value of American Call = Ct ≥ Max ( 0 , St – ( X / 1 + Rf )t )

Minimum Value of American Put = Pt ≥ Max ( 0 , ( X – St ) )

Minimum Value of European Call = Ct ≥ Max ( 0 , St – ( X / 1 + Rf )t )

Minimum Value of European Put = Pt ≥ Max ( 0 , X / ( 1 + Rf )t ) – St

Special Note:- For American options, the following relationship must hold:

S0 – X ≤ C – P ≤ S0 – X * e-rt

Value of a Swap

V = (Present Value of Payments) – [ (Present Value of Par Values) + (Accrued Interest) ] * e -rt

(Asset’s Spot Price) - (Futures Price) = “Basis”

Once: Futures Price = Spot Price, Basis = 0

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Forward Rate Agreement

Forward Rate Agreement Payment to Long:

= Principal X [ ( Settlement Rate – Forward Rate ) X ( # of Days / 360 ) ]

1 + ( Settlement Rate ) X ( # of Days / 360 )

Dollar Default Rate

Dollar Default Rate during a particular year may be considered as:

= (Par Value of defaulted bonds) / (Total Par Value of all outstanding bonds)

Required Rate of Return

Required Rate of Return will be given as:

= Risk Free Rate + [ (Beta) * (Market Risk Premium) ]

Cheapest to Deliver

Cheapest to Deliver bond is the bond with the lowest cost of delivering.

Cost of delivering = Quoted price – (Current Futures Price x Conversion Factor)

USE: “Current Futures Price” or “Settlement Price”

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Riskless Pure Discount

Riskless Pure Discount Position through the formula:

X / (1 + Rf)T = P0 + S0 – C0

KMV Model

The KMV model ( which measures a normalized distance ), is given:

( Expected Assets – Weighted Debt ) / ( Assets’ Volatility )

Convexity

C = (1 / B) X ( d2B / dy2 )

Interest Rate Parity

Ft = St * e (rf −q) * (T−t) , where:

rf is the risk-free-rate
q is our dividend yield
T−t is the time until contract maturity
Ft is the theoretical contract price
St is the underlying security’s spot price

Interest Rate Parity for Currencies

Forward = Spot [ (1 + Local Currency Rate) / (1 + Foreign Currency Rate) ] T

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The Value of a given European Call assuming that there will be no income payment on the
security, we have:

c = [ S * N(d1) ] − [ K * e ( −rτ ) ] X [ N(d2) ]

Interest Earned between Dates

= [ ( # of Days between Dates ) X ( Interest Earned for Period ) ] / ( # of Days in Ref Period )

On Currencies, The interest rate parity theory contends that:

Ft = So * e ( rbc−rfc ) T

Fair Value of a Futures Contract:

F = S * e ( −r *T ) / e ( −r*T )

No-Arbitrage Forward Price will be calculated as:

F ( 0 , T ) = S 0 ( 1 + r )T

Short Position’s Value at Expiration may be calculated from the formula:

VT ( 0, T ) = ST – F (0,T)

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Put-Call Parity Formula:

Call Premium + PV of Strike = Put Premium + Asset Price

Or

C + X * e −rT = P + S , where:

C is the Call premium

X e−rT is the PV of the strike
P is the put premium
S is the underlying asset’s current price

Re‐arranging, we see that: S = C − P + X * erT

Amount of Contracts to sell may be given:

N = ( Beta X Position Size ) / ( Size of single futures contract )

β = Cov ( Spot futures ) / Var ( futures )

Cov = σ spot X σ futures X correlation

The Optimal Hedge Ratio for a Fund:

h = ρ * ( σ fund / σ hedge )

Where:

Ρ is the Correlation Coefficient between σ fund and σ hedge

σ is the Standard Deviation (the change during the hedging period)

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The Value of the Fixed Payment, i.e. Bfix

Bfix = (fixed rate coupon)e(-1Yr LIBOR) + (nominal amount + fixed rate coupon)e(-2Yr LIBOR*2)

Fixed Rate Coupon = Given notional value X Annual fixed rate %

Cost of Carry

Cost of Carry = Interest Cost + Storage Cost – Income Earned

Convenience Yield for a Consumption Asset

Fo = So e (c-y)T

Issuer Default Rate

= ( # of Issuers Defaulting ) / ( Total # of Issuers at Start )

Dollar Default Rate

= ( Dollar Sum of All Default Bonds )

( Dollar Sum of all Issues X Wt. Avg. of Amount of Years Outstanding )

Key Rate Duration

= ( -1 / Bond Value ) X ( Bond Value Change / Key Rate Change )

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Valuation and Risk Models

Put Option’s Value

To find a put option’s value, we may utilize the following formula:

Put Value = { [ Strike Price X e( – RFR * T ) ] X [ 1 – N ( d2 ) ] } – [ Stock Price X ( 1 – N ( d1 ) ]

Call Option’s Value

To find the value of the call option, we may utilize the following formula:

Call Value = [ Stock Price X N ( d1 ) ] – [ Strike Price X e ( – r X days/365)

] X [ N ( d2 ) ]

PutUp = Max ( 0, Strike Price – StockUp )

PutDown = Max ( 0, Strike Price – StockDown )

Π = [ ( 1 + RFR ) – Down Volatility ] / ( Up Volatility – Down Volatility )

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The put-call parity relationship:

Call Price – Put Price = Stock Price – [ Strike Price / ( 1 + RFR )T ]

Rearranging:

Call Price = Stock Price – [ Strike Price / ( 1 + RFR )T ] + Put Price

Or

Put-call parity relationship:

P0 + S0 = C0 + X / ( 1 + Rf )T

Where:

C = Call Premium
P = Put Premium
X = Strike Price of Call & Put
r = Annual Interest Rate
t = Time in Years
So = Initial Price of Underlying Security

Value at Risk

To calculate the Value at Risk, we may utilize the following formula:

VaR = [ Expected Change in Value ] – [ Z-Score X Price Change Standard Deviation ]

Annual Standard Deviation

Annual Standard Deviation = Daily Standard Deviation X ( 365 ) ½

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Convexity Adjustment

Convexity Adjustment = Convexity X 100 X ( Δy )2

Where: Δy is the change in interest rates in decimal form.

Synthetic Call Price

Formula to determine the synthetic call price:

c0 = ( p0 + S0 ) − [ X / (1 + r)T ]

Covered Call

Consider the following as a quick reminder:

‘ Covered Call = Stock + Short Call ‘

The Unexpected Loss formula:

Unexpected Loss, UL = EA X ( PD X σ2 LR + LR2 X σ2 PD ) ½ , Where:

LR = loss rate = ( 1 – recovery rate),

EA = exposure amount,

PD = probability of default

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Daily Standard Deviation

Please note: If information is based on a sample, ‘ N – 1 ‘ will be used in the denominator

Daily Standard Deviation = [ ( Sum of Squared Deviations from Mean / ( N – 1 ) ) ] ½

Implied 1‐Yr Forward Rate

From the Pure Expectations Theory: The expected 1-Yr spot rate, one (1) year from now will be
equivalent to finding the forward rate for the second year, thus:

The Implied 1‐Yr Forward Rate is given:

= [ ( 1 + Two-Yr Spot Rate )2 / ( 1 + One-Yr Spot Rate ) ] – 1

Risk Neutral Probability

We may calculate the risk neutral probability from the given formula:

Π = ( 1 + RFR ) – ( 1 – % Down ) ) / ( ( 1 + % Up ) – ( 1 – % Down ) )

Risk Neutral Probability

The risk neutral probability of a stock going up in a single step may be calculated as follows:

pup = ( e rΔt – d ) / ( u – d )

Dirty Price

Dirty Price = Quoted Price + Interest Accrued from last Coupon Date

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Daily Delta Normal VaR

Daily Delta Normal VaR formula is as given:

= [ R – ( z )( sigma ) ] X ( Portfolio Value ) , where;

 R is our portfolio’s expected one‐day return
 z is our z‐value with respect to the significance level
 Sigma is the standard deviation ( one‐day returns )

Mean Loss Rate

Mean Loss Rate = Probability of Default X ( 1 – Recovery Rate )

Portfolio’s Beta:

Beta, β = Correlation Coefficient X ( Portfolio Standard Dev / Instrument’s Standard Dev )

Sample-Mean

Sample-Mean may be calculated as:

= ( Summation of change in each day’s yield ) / ( The Number of Observations – 1 )

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FRM Examination 2

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Market Risk Measurement and Management

Value at Risk, VaR

VaR = −μ + ( σ * Zscore )

Or

VaR = μ − ( σ * Zscore )

Sharpe Ratio

= (Rp – Rf) / σp

Rp Portfolio Return

Rf Treasury-Bill Returns (or the Risk Free Rate)

σp Portfolio Standard Deviation of Return

Sortino Ratio

= Return on Portfolio – Minimum Accepted Return

Standard Deviation of Returns Below Minimum Accepted Return

Treynor Measure

= (Return on Portfolio – Risk free rate) / Portfolio Beta

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Jenson’s Alpha

= Return on Portfolio – CAPM predicted Return

Information Ratio

= Return on Portfolio – Benchmark Return

Tracking Error

A portfolio’s beta using the respective weightings:

Portfolio beta = w1R1 + w2 R2 + w3 R3

Portfolio Expected Return

= Rf + R(Rm – Rf)

Hedging Relationships

FaceR = – FN X DV01N X β
DV01R

Where:

N is the Core
R is the Hedge

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Correlation for two assets ‘A’ and ‘B’

Correlation coefficient = CovarianceAB / [(Standard deviationA x Standard deviationB)]

Rearranged, we have:

CovarianceAB = (Correlation coefficient) x [(Standard DeviationA x Standard DeviationB)]

Also:

Correlation Coefficient = ( Coefficient of determination ) ½

St − St−1 = a * ( μS − St−1 )

The Vasicek Model

dr dW

dr k * ( r ) * dt ] dw

Binomial Distribution

Binomial Distribution of Exceedances = ( x – pT )

[ p ( 1 – p )T ] ½

Where:

T is the amount of trading days in the year

x is the amount of exceedances

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Forward Pricing

P( T* + T ) = P(T*) X F( T* , T)

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Credit Risk Measurement and Management

Firm Value

[ Firm Value * N ( d1 ) ] – [ Debt * e –rT * N ( d2 ) ]

Netting Factor

Netting Factor = ( ( n + n*(n – 1)½ / n

Expected Loss

Expected Loss = KN ( –e2 ) – At * e u ( T – t ) * N ( -e1 )

Debt Value

Value of Debt = Value of Risk Free Debt – Value of Put Option

St = Vt N * ( k + v ( T – t ) ½ ) – K e –r(T – t) * N ( k )

F’ ( t ) = e - t

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F(u) = 1 – exp ( – hu )

Where:

h = ( Spread ) / ( 1 – Recovery )

Credit Spread

Credit Spread = yD ( t,T ) – y P*( t,T ) = 

Conditional Prepayment Rate (CPR)

Conditional Prepayment Rate = 1 – ( 1 – Single Month Mortality Rate )12

CPR = 1 – ( 1 – SMM )12

Credit Valuation Adjustment (CVA)

CVA = Loss Given Default * Exposure at Default * Default Probability

CVA = LGD * EAD * DP

CVA = ( 1 – Recovery Rate ) *  [ ( Discount Factor ) * ( Exposure ) * ( Probability of Default ) ]

Average Life

Average Life = ( t * Principal time t ) / ( 12 * Total Principal ) ]

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CPR = 1 – ( 1 – SMM )12

Probability of Default

Default Probability = 1 – e t

NB:

 = Spread
1 – Recovery Rate

Default Correction

ab = ab – ( a * b )
[ a * ( 1 – a ) ] ½ * [ b * ( 1 – b ) ] ½

Exposure at Default (EAD)

EAD = Amount Drawn + ( Amount Limit – Amount Drawn ) * Loan Equivalent Ratio

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Operational and Integrated Risk Management

Risk-adjusted return on capital (RAROC)

RAROC = ( Risk Adjusted Return ) / ( Risk Adjusted Capital )

RAROC = Revenues – Costing – Taxation – Expected Losses + Return on Capital +/- Transfers
Risk Adjusted Capital

Adjusted RAROC = RAROC – β ( Market Return – Risk Free Rate )

f ( n ) = (  e –d ) / n!

r e = L * ra – ( L – 1 ) * r d

Probability of Default

Default Probability = 1 – e t

NB:

 = Spread
1 – Recovery Rate

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Worst Case Default Rate (WCDR)

WCDR = N * [ N-1 * ( PD ) + ½ * N-1 ( 0.999 ) / ( 1 –  )½ ]

Default Correction

ab = ab – ( a * b )
[ a * ( 1 – a ) ] ½ * [ b * ( 1 – b ) ] ½

Liquidity Cost

Liquidity Cost = ( Notional Amount X Spread Value ) / 2

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Risk Management and Investment Management

Risk Aversion

A = IR / ( 2 P )

Where:

IR is the Information Ratio

P is the Portfolio’s Active Risk

Sharpe Ratio

= (Rp – Rf) / σp

Where:

Rp Portfolio Return

Rf Treasury-Bill Returns (or the Risk Free Rate)

σp Portfolio Standard Deviation of Return

Sortino Ratio

= Return on Portfolio – Minimum Accepted Return

Standard Deviation of Returns Below Minimum Accepted Return

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Treynor Measure

= (Return on Portfolio – Risk free rate) / Portfolio Beta

Jenson’s Alpha

= Return on Portfolio – CAPM predicted Return

Information Ratio

= Return on Portfolio – Benchmark Return

Tracking Error

Information Ratio

Information Ratio = Information Coefficient * ( Number of Forecasts ½ )

Marginal Contribution to Value Added ( MCVA )

MCVA = n - 2 a *  * Marginal Contribution to Active Risk

MCVA = n - 2 a *  * MCAR

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Current Issues in Financial Markets

For this section, there are actually no formulas to study. Here, you will need to revise historical
and up-to-date information happening within the financial industry.

Thanks for Stopping by and

Please Accept our Best Wishes for Your Exams!

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