-----Original Message-----
From: daniel.roth@cna.com@inetgw [SMTP:daniel.roth@cna.com@inetgw]
Sent: Monday, May 11, 1998 10:53 AM
To: CASNET
Subject: FW: Risk Adjusted Rates of Return
My first reaction is that, even if we were to agree that a risk-adjustment
based upon observed variation is preferable to one based on variation
estimates, I don't know how much it helps. The reason is that our primary
targets for risk-adjusted discount rates, loss reserves, aren't traded in
markets in a way that would allow us to track the volatility in the same way
that the volatility of observed asset returns can be tracked.
Dan Roth
----------
From: GMeyers@iso.com
To: Roth,Daniel G.; casnet@lists.casact.org
Subject: Risk Adjusted Rates of Return
Date: Thursday, April 23, 1998 5:28PM
On page C1 of the March 20 Wall Street Journal, there is an article
about M-Squared - a risk adjusted rate of return. The M-Squared refers
to grandfather/granddaughter team with the names Monigliani. One member
of the team was awarded the Nobel Prize in Economics, the other member
currently works for Morgan-Stanley.
What M-Squared does is it "allows investors to analyze a bunch of
disparate as if they had all shown the same volatility. It does that by
hypothetically blending shares of a volatile fund with cash" to match
the "S&P 500's volatility."
Now I have always been suspicious about many of the various methods of
finding risk-adjusted discount rates. I prefer observable rates. This
strikes me as being different in that the formula for determining this
seems explicit (I did not check any references, I just read the WSJ
article.), and the components are observable.
I would like to hear what others think of this approach. Would this
approach be superior to the various risk adjustments that we all know
and (perhaps) love?
Glenn Meyers
Insurance Services Office, Inc.
Internet: gmeyers@iso.com
Voice:(212) 898-5938
Fax: (212) 898-6060
Visit the CAS Web Site at http://www.casact.org
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