Financial Risk Manager Part 2
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The risk committee of an equity mutual fund is reviewing a portfolio construction technique proposed by a new portfolio manager who has recently been allocated capital to manage. The fund typically grants its portfolio managers flexibility in selecting and implementing appropriate portfolio construction procedures but requires that any methodology adopted fulfill key risk control objectives set by the firm. Which of the following is correct regarding a portfolio construction technique and its approach to risk control?
The risk committee of an equity mutual fund is reviewing a portfolio construction technique proposed by a new portfolio manager who has recently been allocated capital to manage. The fund typically grants its portfolio managers flexibility in selecting and implementing appropriate portfolio construction procedures but requires that any methodology adopted fulfill key risk control objectives set by the firm. Which of the following is correct regarding a portfolio construction technique and its approach to risk control?
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The quadratic programming technique takes into account additional risk parameters compared to other major portfolio construction techniques but also requires more inputs, which leads to more noise.
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