The concept of capital allocation is another fundamental notion for risk managers. The seminar describes how capital is allocated between portfolios of risky and riskless assets, depending on risk preference. Then the efficient frontier, the capital market line, the Sharpe ratio and the separation principle are introduced. These concepts lead naturally to a discussion of the CAPM model and the idea that marginal risk (rather than absolute risk) is the key issue when pricing risky assets.

 

At the end of Intrinsic Value's training seminar in capital allocation the participant should be able to:

􀂅  Describe efficient portfolios that satisfy the mean-variance criterion.

􀂅  Describe tolerances and preferences for Risk vs. Return.

􀂅  Show the efficient frontier for two assets.

􀂅  Show the efficient frontier for a multi-asset portfolio.

􀂅  Define the risk-free asset.

􀂅  Derive and describe the Capital Allocation Line.

􀂅  Describe the Capital Markets Line.

􀂅  Define the market portfolio.

􀂅  Describe the separation principle.

􀂅  List the predictions of Mean-Variance Portfolio Theory.