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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6
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1answer
134 views

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 ...
0
votes
1answer
26 views

What are “df”, “t”, and “p” in these sharpe ratio related estimates?

I am looking at some sharpe ratio related estimates and have not seen Sharpe stats broken down this way before. I don't know what is meant by df, t, and p. Can someone explain that to me? Thank ...
4
votes
1answer
80 views

Backesting VaR on overlapping intervals to year's end

Let us assume that each month of the year (up to November) we calculate a VaR (say 99%) with holding period to the end of the year. Thus the holding period starts with 12 months and goes down to 1 ...
1
vote
0answers
113 views

Trouble verifying roll rate model

I found this paper on roll rate analysis via a google search. I would post a link, but every page is stamped with "CONFIDENTIAL" at the bottom (humorous since it is easily found). In a nut-shell, ...
1
vote
1answer
27 views

Fast to compute, yet plausible risk attribution measures

I am looking for a fast to compute, yet plausible risk attribution measure based on the risk measure used compute overall risk. To be more specific, assume that my risk measure is VaR of a portfolio. ...
1
vote
1answer
72 views

ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
0
votes
1answer
107 views

Currency risk USD>EUR>EGP

Seeking input on hedging risk on USD to Euro with a 3rd component of payroll issued in Egyptian Pounds. We are a US corp invoicing a Germany entity in Euro with massive payroll being paid in Egyptian ...
1
vote
1answer
67 views

CDS spread scenarios from historical market data

I'm searching for information on the best way to generate scenarios to be used in VaR or ES calculations, for CDS spreads. Given that we need significant historical data in order to achieve a decent ...
2
votes
3answers
171 views

Hedge Fund risk management on a daily basis

Since Hedge Funds/Fund of Funds report on a monthly basis usually within 10 days after the month end, monitoring and managing (hedging) potential risks is quite a difficult task. Having done some ...
1
vote
0answers
21 views

Methodologies behind shocking a composite index instrument, what assumption distinguishes these?

Suppose I have a composite index (rebalancing or non-rebalancing) that at present time has some base value $B_{\text{base}}$ in some base economy. I am in the process of shocking the economy on which ...
1
vote
1answer
39 views

Greeks across different underlying

To monitor risk of a client portfolio, does it make sense to accumulate Greeks across different underlying? If yes, how can Greeks be normalized across different underlying?
1
vote
0answers
39 views

Leverage and Drawdown

What are the risks of deleveraging a leveraged long/short equity portfolio when going into a drawdown at certain drawdown stops, like deleveraging by 30% when breaching a -5% drawdown, deleveraging a ...
1
vote
0answers
34 views

Bayesian analysis in R: Probability of default, low default portfolios

I want to apply the knowledge of this paper (Bayesian estimation of probabilities of default for low default portfolios, by Dirk Tasche) in R, but I can't find the right bayesian package and functions ...
4
votes
4answers
689 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 ...
1
vote
0answers
12 views

Why use Moody's KMV EDF for one year

If I were to use Moody's KMV proprietary database with expected default frequqncies(EDF) for sectors and countries, along with aggregations for financials and non-financials, significant banks etc: ...
1
vote
0answers
20 views

In May of 2005, several large hedge funds had speculative positions in CDO tranches

These hedge funds were forced into bankruptcy. This was due to: the correct answer is: Long Mezzanine and Short Equity Tranche position when correlation of Mezzanine tranche decreased. Can anyone ...
0
votes
0answers
8 views

How to attribute the PL dollar impact of change in basis for cross currency basis swaps

I have a portfolio of foreign bonds that were hedged using fixed to floating interest rate swaps and then converted back to domestic currency via cross currency basis swaps. How do I calculate the ...
1
vote
0answers
36 views

Vol surface changes as underlying moves

We market make in highly liquid, near term options markets. I want to build a risk report that tells us how our portfolio's greeks will change as the underlying moves. This is for risk management in ...
3
votes
1answer
232 views

Risk management insurance (Solvency II / MaRisk)

I have a few different questions on topics involving an doing risk management in life insurance. If someone could shed some light on these issues, I would be very thankful. a) How does an actuary do ...
4
votes
1answer
548 views

Applying interest rate shocks under Solvency II

I'm trying to figure out how one would apply the stress scenarios defined under the interest rate risk sub module of Solvency II. I understand that all future cash flows of an interest rate sensitive ...
0
votes
1answer
33 views

how to find the weights in a portfolio? [closed]

Compute the weights in a portfolio consisting of two kinds of stocks if the expected return on the portfolio is to be $E(K_v)=10\%$, given the following information on the returns on stock 1 and 2: $$ ...
3
votes
0answers
90 views

Non-parametric estimator - CVAR / Expected shortfall

Is the estimation of the CVAR using known non-parametric methods (histogram , kernels) is different than the estimation of any other R.V.? If the answer is yes, then I am interested to know whether ...
0
votes
0answers
11 views

Standardized and Advanced IRB together

Is it possible to use Standardized approach and AIRB together for the same asset class? For example sovereigns see a risk weight of 0% if AAA, but in AIRB they might not be seeing 0 weight. Is it ok ...
1
vote
1answer
73 views

Clarification of The Market Portfolio

I am currently reading John C. Hulls' "Risk Management and Financial Institutions" and came across the following passage related to the efficient frontier and combinations of risky and risk-free ...
1
vote
2answers
104 views

Stochastic process theory question

*S follows a process $dS= mSdt + oSdz$ where m and o are constant. What is the probability followed by $ Y=(Se)^{(r-t)} $. If S follows a process $ dS= k (b-S) dt + oSdz $ where k, b, o are ...
3
votes
1answer
105 views

Spectral and distortion risk measures

Is there any difference between the spectral and distortion risk measure? Or is it just a different name for the same kind of risk measure?
0
votes
0answers
43 views

Value at risk computation for a diffusion process

Given a hypothetical process $X_{t}$ defined by : $$ X_{t} = \int_0^t b_{s} ds + \int_0^t W_{s} ds + \sum_{i=1}^{N_{t}} \gamma_{T_{i}} Y_{i}$$ $ W_{t}$ is a standard brownian motion, $b_{t} ...
0
votes
0answers
76 views

Large deviations theory and extreme value theory

I'll enter into details of both, sooner or later, but for the moment I'm concerned about the differences (and relationships, if any) between these two theories. Can someone give me a brief, but still ...
0
votes
0answers
29 views

Portfolio Analytic Metrics for Portfolios with Serially Correlated Returns

I just read Andrew Lo's paper from 2002 "The Statistics of Sharpe Ratios" and am wondering if anyone knows of any other papers/docs/resources that explore the impact of serially correlated returns on ...
2
votes
2answers
81 views

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 ...
4
votes
2answers
2k views

What is the best alternative of Quantlib library

We need to build a Fixed Income Portfolio Risk Analytics solution. Somehow due to administrative reason we can't use Quantlib which is written in C++, even call it through SWIG via JNI. We have tried ...
1
vote
1answer
259 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?
3
votes
0answers
53 views

Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?
0
votes
1answer
58 views

Basic Metrics for Option Trading Limits

Imagine a trading house that trades options in a modest way, and is looking for simple but effective metrics over which trading option limits will be set. Some random thoughts: 1) VaR is not ideal, ...
2
votes
1answer
94 views

Risk Manager must-know list

What are the products, concepts, and models a risk manager must know? I'm not looking for an exhaustive list, but rather a general list as the one in Paul & Dominic's Guide To Quant Careers: ...
8
votes
9answers
57k views

How to calculate unsystematic risk?

We know that there are 2 types of risk which are systematic and unsystematic risk. Systematic risk can be estimate through the calculation of β in CAPM formula. But how can we estimate the ...
0
votes
0answers
20 views

Portfolio construction for signals of varying time scales?

Wondering if anyone is aware of any research on combining/portfolio construction of signals on different time scales. For example, if I have a trading signal (alpha) that generates trades every hour ...
0
votes
0answers
34 views

Lambda in RiskMetrics for fixed income

What is the default lambda proposed in RiskMetrics for fixed income?
12
votes
1answer
426 views

Consistency of economic scenarios in nested stochastics simulation

I am interested in references on research regarding the consistency of economic scenarios in nested stochastics for risk measurement. Background: Pricing by Monte-Carlo: For pricing complex ...
3
votes
2answers
142 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 ...
12
votes
3answers
2k views

Papers about risk management in algorithmic trading?

I am currently doing my research for my master thesis, which will clearly focus on the question of risk managment in algorithmic trading systems. I have done research about this topic and found some ...
1
vote
0answers
30 views

Commercial Vendors for Risk Management and Portfolio Optimization and Performance Attribution

So this question is directly about companies such as Axioma, Barra, Northfield, and etc. that provide risk management, portfolio optimization, and performance attribution related services. I want to ...
-1
votes
1answer
117 views

Where can I find data source for structural models?

I am starting a project to implement the Black-Merton-Scholes model from this book in R. However, I am looking for, ideally free, data sources. Still I have access to a Bloomberg terminal. Can you ...
1
vote
1answer
25 views

What are pre and post stress capital?

Fed papers make reference to a post-stress and pre-stress capital. I can't find definitions of these online, but from the context (below), it sounds like the post-stress capital is the estimated ...
8
votes
4answers
565 views

How to treat large (5K-10K) non-positive-definite (particularly near-singular) covariance matrices for Cholesky decomposition?

I have a very large covariance matrix (around 10000x10000) of returns, which is constructed using a sample size of 1000 for 10000 variables. My goal is to perform a (good-looking) Cholesky ...
1
vote
0answers
17 views

Multiple similar values simulation

Perhaps some of you came across the following task that I am trying to automate for @RISK, VOSE or other simulation software? I have a question as we are trying to use the software to estimate the ...
1
vote
4answers
1k views

Stressed Value at Risk vs Value at Risk

Just read some materials about SVaR. Is there only holding period that changes in comparison to VaR methodology?
0
votes
3answers
64 views

What information should be delivered to the client so they have enough information to manage their exchange rate risks? [closed]

The client can be a CFO or CEO. The information can indicators, charts, graphs, statistics, ratios, etc. I know the VaR is one of them.
0
votes
1answer
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 ...