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Index Replication Methods Quiz

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Questions and Answers

What is the main advantage of physical replication over synthetic replication?

Lower tracking error

Reduced exposure to counterparty risk (correct)

Increased diversification

Higher cost efficiency

Which tracking method is characterized by a sophisticated computer modelling technique?

Optimization (correct)

Full replication

Stratified sampling

Synthetic replication

Why is full replication considered suitable for only large portfolios?

It is more expensive than other tracking methods (correct)

It requires holding all index constituents based on their weightings

It involves more counterparty risks

It provides less accurate tracking for smaller portfolios

What is the primary concern associated with stratified sampling?

Subjectivity in selection leading to biases Signup and view all the answers

Why does synthetic replication pass on the responsibility of tracking to a swap provider?

To reduce the tracking error Signup and view all the answers

Which tracking method employs a representative sample of securities from the index?

Stratified sampling Signup and view all the answers

What is the downside of using optimization as a tracking method?

Complexity and sophistication involved Signup and view all the answers

Why is full replication generally considered more accurate than stratified sampling?

It holds all index constituents based on their weightings Signup and view all the answers

Index Replication Methods Quiz

Choose a study mode

Podcast

Questions and Answers

What is the main advantage of physical replication over synthetic replication?

Which tracking method is characterized by a sophisticated computer modelling technique?

Why is full replication considered suitable for only large portfolios?

What is the primary concern associated with stratified sampling?

Why does synthetic replication pass on the responsibility of tracking to a swap provider?

Which tracking method employs a representative sample of securities from the index?

What is the downside of using optimization as a tracking method?

Why is full replication generally considered more accurate than stratified sampling?

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