Benchmark risk
A)is inevitable and is never a significant issue in practice.
B)is inevitable and is always a significant issue in practice.
C)cannot be constrained to keep a Treynor-Black portfolio within reasonable weights.
D)can be constrained to keep a Treynor-Black portfolio within reasonable weights.
E)none of the above.

Question

Quizplus · Accepted Answer

Benchmark risk refers to the risk that a portfolio deviates significantly from its benchmark index. Treynor-Black model is a portfolio optimization model that takes into account the investor's risk tolerance and the market's risk profile (beta) to construct a portfolio. Benchmark risk can be constrained by setting limits on the deviation of the portfolio from the benchmark, thus keeping the weights of assets within reasonable bounds. Therefore, D is the correct answer. A, B and C are incorrect as they do not reflect the nature of benchmark risk and its management.

Benchmark Risk