SCR Calculator User Manual

Version Last modified 2024-3-21

Step 4. Add Numeric Constraint(s)

Now select "Spread SCR" in the "Column Name" of the first numeric constraint row. You will notice the "Metric" box auto-populated with "Weighted Sum", which is the method of calculating this metric, based on the calculator' interpretation and any definition you gave earlier. The "Value" box also auto-populated with a value of "0.0540", which is the value of this metric for the current alloation. Leave it unchanged and it becomes a spread SCR cap for our next step optimisation.

Now re-click the "Run EF Calibration" button. You will get EF #2 (yellow) which is much lower than EF #1 but still above the current allocation:

Click any efficient frontier and everything in the form will be updated based on that efficient frontier's original settings. This way you can faithfully replicate any particular efficient frontier that you have run; and compare aspects between different ones.

The Stacked Area "AA Chart" shows the allocation trend at different expected return levels (X-Axis).

Both the Efficient Frontier chart and the AA Chart can be exported in the form of PowerPoint slides. Below are downloadable examples of exported slides:

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Weighted Average vs. Weighted Sum

  • "Weighted Average" means a set of values are timed by their weights then added, then the total is divided by the their total weight.
  • "Weighted Sum" means a set of values are timed by their weights then added, with no division by their total weight.
  • These two metrics are the same when their total weight is equal to 100%, but different if not.

Therefore when you set constraint on duration, if fixed income asset allocations are already heavily bounded, it is ok to set duration constraint by "Weighted Average"; otherwise you need to set by "Weighted Sum", to prevent the movement of fixed income asset weights invalidate the duration constraint.