you will also see shortfall risk being expressed in terms of number of standard deviations from the mean.
examples
1. “Webb suggests that their portfolio be structured to limit shortfall risk (defined as expected total return minus two standard deviations) to no lower than a negative 12 percent return in any one year.”
Book 2 (Institute 213)
2. “Another kind of ALM risk objective relates to shortfall risk with respect to plan liabilities. (Shortfall risk is the risk that portfolio value will fall below some minimum acceptable level over some time horizon; it can be stated as a prob- ability.) Shortfall risk may relate to achieving:
■ a funded status of 100 percent (or some other level) with respect to the ABO, PBO, or total future liability;”
Book 2 (Institute 439)
3. “Still another way for an investor to quantify risk is in terms of shortfall risk, the risk that a portfolio’s value will fall below some minimum acceptable level during a stated time horizon. The risks that a retiree’s assets will fall below the amount needed to supply an adequate retirement income, or that a defined-benefit plan’s assets will be less than the present value of plan liabilities, are examples of shortfall risk. When shortfall risk is an important concern for an investor, an appropriate shortfall risk objective improves the description of the investor’s attitude to risk. Shortfall risk is one example of the larger concept of downside risk (risk relating to losses or worse than expected outcomes only). Downside risk concepts include not only shortfall risk but concepts such as semivariance and target semivariance that also may be applied in asset allocation and are discussed in statistical textbooks (as well as defined in the glossary). The oldest shortfall risk criterion is Roy’s safety-first criterion. Roy’s safety-first criterion states that the optimal portfolio minimizes the probability over a stated time horizon that portfolio return, RP, will fall below some threshold level RL that the investor insists on meeting or exceeding. The safety-first optimal portfolio maximizes the safety-first ratio (SFRatio):”
Book 3 (Institute 192)
Institute, CFA. CFA Institute Level III 2014 Volume 3 Capital Market Expectations, Market Valuation, and Asset Allocation. Wiley Global Finance, 2013-07-12. VitalBook file.