Delineating Efficient Portfolios - Financial Risk Manager Video Lecture | Risk Management: An Essential Training - Management

simply learn your pace your place
financial risk manager frm par one of
the frm exam covers fundamental tools
and techniques used in risk management
and the theories that underlie their use
delineating efficient portfolios someone
asks money from you and says that he
will invest your money in a horse race
and if he wins he will return three
times of money given now will you lend
money to him some might say yes while
some will reject the offer it is the
concept of risk and return they go hand
in hand if returns are higher risk will
also be higher it depends on how much
risk appetite the individual has so in
this lecture we introduced the concept
of risk and return in which the
investors maximize the return for the
given amount of risk this is done
through logical investment in an
efficient portfolio a concept that we
will learn very soon agenda in this
lecture we will learn some important
concepts in risk management we will
begin our discussion by learning some
important concepts of asset returns and
volatility these concepts have been
discussed in detail in the quantitative
section but it has been included here as
a prerequisite for the lecture if you
have not learned these concepts yet then
we will learn about plotting to asset
portfolio curves and see the effect of
different correlations on the shape of
the curve finally we will learn about
efficient frontier and effective
portfolios and see how shorting and
combining risk-free asset into the
portfolio changes the shape of the curve
prerequisite we invest our money in
order to get some return there are many
assets in which we invest our money we
can purchase gold stocks bonds or a
property all these assets provide very
returns and have varying levels of risk
associated with them
the expected return is the return that
we can expect from the asset over a
period of time in general it is measured
from historical data by taking the
average of past returns suppose the
average return from gold over the last
10 years has been six percent annually
then we can expect to earn this return
in the next year the mathematical
expression of the calculating and
expected return is given in the slide
where e times X denotes expected return
X I denotes return in period I and n
denotes number of periods prerequisite
while investing our money