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Abstract:
This paper details a method for estimating a zero-coupon yield curve using a set of securities data. The approach uses a McCullough cubic spline and can be estimated using restricted least squares in Excel which provides a considerable advantage over other more advanced, but not necessarily more accurate models.
spline, yield curve, excel
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Abstract:
A simple measure is developed that can determine if investment efficiency is increased by including an alpha strategy. If the correlation between alpha and beta is lower than the ratio of information to Sharpe ratios, the strategy should be pursued. A combined alpha and beta Sharpe ratio measure is developed and used to determine a simple but optimal strategy for an alpha-beta risk budget. When alpha-beta correlation is zero, the risk budget is optimal at the ratio of the information to Sharpe ratios. An optimal risk budget for non-zero correlation is also addressed.
Risk budgeting, alpha, beta, active management, benchmarks
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