Thanks to Harry Markowitz – a renowned Noble Prize winner in economics – that the world now has become familiar with the theory of portfolio. It was Markowitz who suggested that investors can indeed secure their investments by leveraging different price movements. His was the goal of diversification.
Different Portfolio Management Techniques
There are two major techniques to manage the portfolio – aggressive and passive. Interesting aspect of both these techniques is that they are not dependent upon the market knowledge. But, they are rather dependent upon diversification of assets, duration, industry, capitalization and cash cycles. The only difference between the two strategies is that passive expects the return equal to the market assuming that market is highly efficient, whereas aggressive technique aims for a return above the market assuming the inefficiency of the market.
Portfolio Stress Testing
Stress testing per se is a system to test the stability of a particular system, in this case the system of portfolio of the investor. This type of testing is employed to check whether any particular system can work inspite of abnormal conditions. In other words, it checks the limits of the system and the outcome. Generally, when it comes to portfolio stress testing, points to be considered include: how the portfolio reacts in case of equity markets crash, GDP fall, change in interest rates etc. The experts decide a certain limit for this test and that is how it is carried out.
CRE Stress Testing
Last year, the he Office of the Comptroller of the Currency, U.S., released the guidance for Community Bank Stress Testing. It gives the institution an example of a kind of a stress test framework that can be used to test the stress of commercial real estate investment. The purpose of this guidance is to make the institutions analyze their own risk appetite and tolerance. By this process, they can assess the possible impact of the difficult situations as well.
Benefits of CRE Stress Testing
One of the major benefits is that it prepares the institutions to cope up with any emergency. It also boosts up the confidence and raises the level of awareness about the possibility of the adverse situations. This consequently not only helps the institution plan in-advance but also maintain the necessary capital flows.
Methods of Stress Testing
This process does not need to be complicated always. It can range from a simple excel sheet analysis to a bit more advanced model. Methods therefore should depend upon the size and the risk of the portfolio in question and the complexity of the bank.
Find more information at http://www.ceisreview.com/ or call us on 888-967-7380
Different Portfolio Management Techniques
There are two major techniques to manage the portfolio – aggressive and passive. Interesting aspect of both these techniques is that they are not dependent upon the market knowledge. But, they are rather dependent upon diversification of assets, duration, industry, capitalization and cash cycles. The only difference between the two strategies is that passive expects the return equal to the market assuming that market is highly efficient, whereas aggressive technique aims for a return above the market assuming the inefficiency of the market.
Portfolio Stress Testing
Stress testing per se is a system to test the stability of a particular system, in this case the system of portfolio of the investor. This type of testing is employed to check whether any particular system can work inspite of abnormal conditions. In other words, it checks the limits of the system and the outcome. Generally, when it comes to portfolio stress testing, points to be considered include: how the portfolio reacts in case of equity markets crash, GDP fall, change in interest rates etc. The experts decide a certain limit for this test and that is how it is carried out.
CRE Stress Testing
Last year, the he Office of the Comptroller of the Currency, U.S., released the guidance for Community Bank Stress Testing. It gives the institution an example of a kind of a stress test framework that can be used to test the stress of commercial real estate investment. The purpose of this guidance is to make the institutions analyze their own risk appetite and tolerance. By this process, they can assess the possible impact of the difficult situations as well.
Benefits of CRE Stress Testing
One of the major benefits is that it prepares the institutions to cope up with any emergency. It also boosts up the confidence and raises the level of awareness about the possibility of the adverse situations. This consequently not only helps the institution plan in-advance but also maintain the necessary capital flows.
Methods of Stress Testing
This process does not need to be complicated always. It can range from a simple excel sheet analysis to a bit more advanced model. Methods therefore should depend upon the size and the risk of the portfolio in question and the complexity of the bank.
Find more information at http://www.ceisreview.com/ or call us on 888-967-7380
No comments:
Post a Comment