# Tagged Questions

The identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.

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### How to perform risk budgeting for non-linear portfolios?

I am using this question to compute optimal weights following a risk budgeting approach. The problem is I am using non-linear portfolios (options,equity,fixed income,fx). What I am looking for is ...
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### Is there any research on pyramiding techniques of entering/exiting a trend?

I am looking for any research about optimal strategies for gradually building (scaling in) positions inside a trend as well as optimal gradual exit strategies on pullbacks/reversals to minimise ...
40 views

### Performance analysis for a changing portfolio

I am trying to do a performance analysis of an investment in five different funds (A to E). I am investing a fixed amount at each fund (say 10m in A, 20m in B, 10m in C, 20m in D, 10m in E) but the ...
156 views

### Extracting Default probability from a single CDS

I have to find the CDS's default probability using the simplest Poisson Process (intensity constant). I'm wondering how to get this estimate if I have only a CDS with maturity 5years. If I had ...
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### conferences for credit portfolio managers

What are worth conferences for credit portfolio managers? I appreciate your recommendations! PS:I am aware that this question is not the typical quant.SE question, BUT I couldnt find reliable ...
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### VaR calculation accuracy/comparison/effectiveness through different R packages

My question is what would be the better( in terms of estimation accuracy) method of VaR calculation among below two:, also any small code snippet will be great as a starting point for me. 1st method: ...
100 views

### Do I need simulink to model the risks of an option portfolio

I wish to buy Matlab Home and learn to model the risks of a derivatives portfolio and then stress test it. So I am guessing I will need : Stochastic calculus Linear algebra Stats/Probability Some ML ...
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### How to effectively hedge a Fixed-Term deal in a foreign currency?

Assume my firm is based in USD and agrees with some counterparty to buy, at time $T$, some quantity $Q$ of asset $A$ for a fixed price $K$. Assume also that $A$ prices and $K$ are denominated in EUR. ...
198 views

### Modified duration in multi-currency portfolio

I was thinking about how to figure aut duration for portfolio of bonds denominated in different currencies… I would like to compare sensitivity of portfolio to shift of yield with competitive ...
149 views

### Why is the variance of a portfolio a quadratic form?

I was reading about MPT http://en.wikipedia.org/wiki/Modern_portfolio_theory and notices that the total variance of a portfolio is $x' \Sigma x$, where x is the weighting of the assets and $\Sigma$ ...
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### References for PD / LGD estimates of low-default portfolios

Any recommendations or reading sources for estimating individual PDs and LGDs for a set of low-default assets (souvereigns, investment grade corporates)? Since observing no defaults at all, regular ...
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### Machine learning to build top 3 price scenarios over n days

I have a time series of closing prices for a given stock. I would like to formulate possible future scenarios for the price. My intention is not to use these "likely" scenarios to take any position. ...
234 views

### New ways of communicating risk

One of the scapegoats of the financial crisis was value at risk. Still communicating risks effectively to clients is a big challenge and hugely important (also to keep your job as a quant!) In this ...
297 views

### Difference between Risk avoidance and Risk transfer

I was hoping some could explain the two terms namely, risk avoidance and risk transfer. Also, can a risk be avoided by transferring it?
113 views

### Empirical distribution function of overlapping time series data

If we model asset return volatility for periods of more than one (say more than one day) there is the square-root rule which holds true under some assumptions. The situation is more tricky if we look ...
192 views

### continuous dividend yield - european option

Can someone help with following task? You need to use a 5-period forward binomial model to price options, which is constructed by specifying the up and down moves as follows: u = exp {(r − δ) · h + ...
131 views

### Works of Nassim Taleb

I am looking to find the list of math/statistics papers of Nassim Taleb. However the google scholar page only seems to show popular articles. I know that he's famous for his theory of randomness and ...
92 views

### Create Markets Bubble Indicator

I am trying to replicate a Bubble Indicator described here. The indicator is strictly based on calculating the regularity of price behavior to determine herding in multiple time frames. I tried the ...
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### What are good online resources for credit portfolio managers?

I am aware that this question is not the typical quant.SE question, BUT I couldnt find any site/forum/wiki, where credit portfolio managers hang out to share their experience and their methods. ...
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### What are the different Credit Portfolio Management models and what are their advantages?

CreditMetrics, RiskMetrics(Algorithims), etc. are all different risk methodologies used by many banks. However, what are their advantages/disadvantages? I would appreciate your replies!
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### Does anyone know where I can find a free efficient frontier tool, or an informative and legitamate/academic graph of the efficient frontier?

I'd like to build a portfolio based upon modern portfolio theory and I'd like to find a tool I can use to calculate the proper mix of asset classes. Can anyone help with this? I think a good chart/...
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### What is the difference between these two Expected Shortfall definitions?

I have come across different ways expected shortfall is defined. e.g. $$ES_a(X)=\frac{1}{1-a}\int_a^1VaR_b(X)db$$ and $$ES_a(X)=\frac{1}{a}\int_0^aVaR_b(X)db$$ e.g. on Wikipedia's article. Are these ...
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### What are recent important papers on credit portfolio risk modeling?

I'm interested in papers which consider mathematical models of risks of different portfolios of retail credit. This is not my area of research, so I may be misusing some terms. The idea is simple: I ...
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### How to calculate global exposure via commitment approach for FX swaps?

How would you calculate global exposure for FX swaps using the commitment approach? In particular, would you take into account both legs? CESR guidelines (CESR/10-788) defines that the exposure for ...
807 views

### What to use as portfolio diversification measure?

Suppose that we have a portfolio of $n$ assets. A perfectly diversified portfolio is one in which each asset has equal weights, i.e. each asset has weight $\frac{1}{n}$. Of course this is usually not ...
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### How to manage risk on a call calendar when underlying is falling

Let us say I bough a call calendar spread. Now, at expiry of the short option, the underlying has decreased significantly, and I am approaching my max loss(i.e both the options are close to 0). In ...
190 views

### Getting Parameter of Translated Gamma Distribution from Monte Carlo

Spin-off from here. (Edit) Main question: What do I do about a parameter whose suggested values range quite vastly? (Edit) Backstory: I am given data of loss values and the dates that correspond to ...
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### Compute moments of aggregate loss using Monte Carlo

Spin-off from here. Richard referred to me an article that tells me how to get parameters of a translated gamma distribution to which I should consider fitting simulated aggregated loss values. The ...
293 views

### Get distribution for aggregate loss using Monte Carlo

I am given two data sets containing dates and losses (in some currency). Given a distribution for the amount of losses and an (a,b,0) distribution for frequency of losses, how can I use Monte Carlo ...
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### Longevity risk modelling

What is Longevity risk, and how to model it under DC and DB pension plans? characters|characters|characters|characters|characters|
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### Fixed Income risk attribution in the historical simulation of a sovereign bond portfolio

We use historical simulation for risk analysis. I.e. for each bond there is a repricing of the form $$P_j = PV(\text{yield curve in scenario } j),$$ where the yield curve is the zero rates curve of ...
202 views

### comparing modified VaR to ordinary VaR

What inferences can one draw when given a modified VaR at x% confidence and an ordinary VaR at x% confidence level. If the two are equal one inference can be that returns are gaussian but that also ...
292 views

### What Matlab packages to I need as a Risk Analyst?

What toolbox are more suitable for a risk analyst. I found this: Optimization toolbox Global optimization toolbox Econometrics toolbox Financial toolbox Statistics toolbox And also I have as a ...
150 views

### Risk measures, Risk Management and Financial Risk Area

I'm currently searching material about market risk and I learned about coherent risk measures, VaR, CVaR (or expected shortfall), volatility. All that because I have to make a Financial Risk Area for ...
139 views

### How to extrapolate VaR?

I have a model predicting 1-day VaR. How does 1-year VaR follow from it? Shall I just multiply by 365 or another method?
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### Index creation from multiple time-series and variable weights

I am trying to compose one index out of several (three) indices with variable weights, 50%, 25% and 25%. After normalizing and calculating the log returns, what would be the best way to create the ...
16k views

### What is the difference between asset management and wealth management?

What is the difference between this two concepts?
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### Variability in the Expected Shortfall estimator

Are there any results for calculating the variability in the Expected Shortfall measure. I am looking for Large sample confidence intervals under Normality for Expected Shortfall or calculation of ...
828 views

### Is there anyone still using Markowitz modern portfolio theory?

I was reading about the MPT (Use standard deviation as risk measure) on "Mathematics for Finance by Marek Capinski". I was just wondering is there anyone actually applying this theory to their ...
174 views

### Question 1.18 from Hull's Financial Risk management CAPM

A portfolio manager maintains an active portfolio with beta of 0.2. Risk-free rate is 5% The market return for a particular year is -30% The fund produced a result of -10%. He claimed the return was ...
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### Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
106 views

### conservative approach payoff table

With the conservative approach, we choose the decision which maximises minimum payoff. I was wondering which decision is chosen if 2 decisions have equal minimum payoff (which is the maximum)? ...
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### Standard errors clustered along the time dimension in pooled panel logit model

I'm trying to estimate a logit model on pooled panel data set (unit of observation is firm-year). My dependant variable is default indicator and I have several macro variables as independant variables....
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### Estimate correlation of time series whose histories differ in length

Very often in quantitative analysis (e.g. calculating portfolio volatility) we have to analyze various time series - mostly returns - whose lenghts differ. Risk systems usually apply a one-factor ...
421 views

### How to create a model or formula for evaluating trade opportunities

I want to build a formula to produce a score for a potential trade based on 4 variables, time, return, liquidity of security, and probability of failure. For a set of potential trades I first ...
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### Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such ...
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### proper choice of risk aversion parameter in the risk-sensitive cost-criterion

Suppose I want to minimize certain risk sensitive cost. Is it a valid question to ask what is the proper (also in which sense) choice of risk aversion parameter in the risk-sensitive cost-criterion ? ...
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### How to projectP&L or drawdowns on pair trading , trading and portfolios? [closed]

This is for planning and risk management. I am stuck on the following thoughts - Back-test the trading strategy for a period similar to the one you expect and then project. Do the above using ...