The possibility that a negative event (such as a loss) will happen.

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472 views

Directional/Non-Directional Risk

Can someone explain to me what is direction/non-directional risk? Went through few sites but couldn't understand much.
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126 views

What is the realized volatility's estimation error?

Given an estimation procedure and real data, how would one compute the mean squared error? What value represents the "true" realized volatility in the case of calculating the Mean Squared Error in ...
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1answer
94 views

Plain vanilla risk parity with trends forecasting power

I have built an asset allocation model (plain vanilla risk parity) but I would like to adapt the initial asset allocation with respect to potential futures changes in the trends of the assets under ...
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0answers
25 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?
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36 views

How to use the asset covariance matrix for risk analysis in excess returns equation

New here and I have a question that may be very basic but despite my research I cannot connect the dots. I would like to know how to connect the nxn asset covariance matrix for an efficient tangency ...
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14 views

How discount TVaR of a put option?

Let say I want to calculate the TVaR of a put option. After I simulated possible outcomes in real-world, how do I discount the outcomes? Is there a difference if I am hedged or not? I tried to use ...
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65 views

Is it possible to generate Alpha by taking only systematic risks?

I read somewhere that to generate Alpha one has to take idiosyncratic risks. But is it not possible to generate alpha by taking just systematic risks. There could be a asset allocation strategy where ...
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27 views

Solvency Problem for Financial Institutions

According to my finance lecture, the motivation for risk measures is grounded in the solvency problem: Risk measures are used to determine the amount of capital to avoid insolvency of the financial ...
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36 views

volatility grouping

I was working on risk levels of a combined portolfio (includes options,futures as well as stock). While using greeks we can asses some value of a portolio, but when one needs to assess some kind of ...
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1answer
161 views

Factoring risk premium in to Forward Rate calculation

This is a self study question. I'm calculating a forward rate. Specifically, I have that in a country X, the Spot Rate is 5X/1US. I also have that the 1 year interest rate is 13% in country X and ...
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303 views

Difference between “basic risk” and “basis risk”

Returning to Futures contracts, basic risk refers to the risk remaining after the hedge has been put in place and essentially represents the difference between the Futures price – should the ...
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63 views

Minimum PD under Basel II retail asset?

I have been told that under Basel II the minimum PD that one can assign to any portfolio/segment classified under the retail asset class is 0.33%. But Google searches return nothing and I can't seem ...
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1answer
349 views

Risk-free investment strategy for european call and put option

I have some trouble solving the following question: We have an european call and put option (with the same maturity date $T$ en strike $E=10$). The stock price now is $S=11$ and we use a continuous ...
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40 views

Inferring Returns From Minimal Data Points [duplicate]

Possible Duplicate: How much data is needed to validate a short-horizon trading strategy? Suppose I have daily returns for a trading strategy against one month of data. Before starting ...
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1answer
79 views

Math basics of Equally-weighted Risk contributions

i'm writing my BA Thesis about "Equally-weighted Risk contributions". Can anyone recommend math books for further understanding of Risk contributions?
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1answer
325 views

Interest Rate Swaps on Mortgages [closed]

Is it possible to get interest rate swaps on mortgages? If not, why not? Are there models that describe this? Any direction would be great.
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22 views

Credit Risk question

Consider two 7% (annual) coupon corporate bonds, each with one year to maturity. Both are expected to default with 20% probability. Investors demand an expected return of 4.5% on both bonds. The only ...
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0answers
44 views

How much does Axioma risk model cost?

does anyone know the pricing scheme of Axioma's risk models? I heard that they are much cheaper than Barra, which can easily go above $100k per year per country/region. PM is welcomed. thanks
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2answers
85 views

What is the most amount of money the consumer would be willing to pay to play take this gamble?

Suppose a consumer has log-utility over wealth, defined by $u(W) = \ln(W)$. Suppose this consumer has $100$, and is considering taking a gamble in which the consumer flips a coin, and gets $20$ she ...
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1answer
871 views

Show that convexity of call price as a function of the strike is violated [closed]

European call options with strikes 90, 100 and 110 on the same underlying asset and with the same maturity are trading for 22.50, 18.84 and 13.97 respectively. show that the convexity of the call ...