# Questions tagged [risk]

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

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Beginning with no position, you start to increase your position in two assets, X and Y, which are both Gaussian distributed. You increase your position in asset X by \$4 of standard deviation per day, ... 0answers 33 views ### Mean Semivariance Optimization VS PMPT Mean Semivariance optimization defines semivariance, variance only below the benchmark/required rate of return, as:$(1/T).\sum_{t=1}^{T} [Min(R_{it}-B,0)]^2$where$B$is the benchmark rate,$R_{i}$... 0answers 23 views ### How to calculate R for strategies with dynamic exit points Calculating R is easy when trading a straight forward strategy which has its entry and exit points clear: ... 0answers 50 views ### One periodic binomial model I need to look into a one-period Binomial model$(B_t, S_t)$with interest rate$r = 0.1$,$S_0 = 100$and $$S_t= 120 \, \text{with probability}\, 0.5$$ $$S_t= 60\, \text{with probability}\, 0.5$$... 0answers 33 views ### To price Municipal Bonds and risks I want to know the percent of unfunded pension liabilities ($3.8T) to total state and local gov liabilities

Unfunded pension liabilities keep growing and this seems alarming to both pension holders but also Municipal Bond holders. I would like to know how large this problem is to better price Munis and ...
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### Are Muni REVENUE bonds secured or can the local gov. use the revenues for other purposes not paying the bond holders if its going bankrupt? [closed]

Municipal bonds are of two kinds: GO (General Obligation) Bonds or Revenue Bonds. My question on Revenue Bonds is: are the revenues from the specific project secured or can the local government use ...
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### American Option - Early exercise risk management

This is for American Option Book Management in real trading. Let`s suppose, American Option seller(Book manager) only do delta hedging, which means seller cannot do Vega hedging, American Option ...
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### Using transaction data to predict default of the customer

I am trying to build a prediction model that utilize the huge transaction database of all the customers of a bank. My dataset currently looks like this: ...
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### Options trade - statistically expected return calculation?

I am calculating expected return for composite option strategies based on event probabilities provided by the broker. For example, consider the following spread On the left hand side we see: maximal ...
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### What does 5 year OIS actually mean?

I am aware that OIS is the new reference/risk-free rate for collateralized cashflows. OIS is by definition an overnight rate (annualized, I assume). So once I have constructed my OIS yield curve, what ...
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### CRRA Utility Function Problem

"Assume an investor with total wealth of $100 that has a constant relative risk aversion (CRRA) utility function. The functional formula for the CRRA utility function is given as$\ U[W]=\frac{W^{1-θ}...
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### Why is change in risk premium not a violation of the Efficient Markets Hypothesis?

A passage in my textbook is confusing me. It states that various market indicators (e.g. yield spreads between high/low grade bonds, earnings yields) lead to predictability in the security's risk ...
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### Allow drift in weights in a risk benchmark?

I am tracking the risk of portfolios using a standard 2-asset benchmark (S&P500 / Agg bond) and I want to throw a flag if the risk of a portfolio goes outside of a certain range relative to that ...
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### single period security market with two assets

Consider a single period security market with two assets. Assume the current prices are There are two states at time one and the payoff matrix is 1.Suppose the investor believes that each state has ...
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### Which rate to use as a risk free rate in emerging markets?

By looking at Fama and Frenchs global Portfolios, they just use the USD-RF rate as the risk free rate, because they converted their Returns to US-Dollar. Im currently estimating Strategy Returns in ...
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### How do I derive a blend of a 3Y future and 10Y future risk?

So I have a portfolio of Govt. bonds that I'm trying to hedge with futures. Let's take one of the bonds out of the portfolio as an example. In bloomberg, every bond and its future counterparts has a ...
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### Absorption Ratio

I'm actually trying to implement Mark Kritzman's absorption ratio (Principal Components as a Measure of Systemic Risk by Kritzmam, Li, Page and Rigobon, 2010, SSRN 1633027) using Python, but I'm not ...
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### Barra model: why standardize the fundamental risk factors?

The two main types of risk factors included in the famous Barra model are called the "fundamental factors", and "industry factors," and the thing that I do not understand is why are only the former ...
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### Adjust the Capital Market Line For Margin Interest

Modern Portfolio Theory assumes unlimited borrowing and investing at the risk-free rate. Of course, this is not realistic; margin interest costs several multiples of the RFR, especially for portfolios ...
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### Having only 2 Industry risk factors?

Is it possible to build a risk model that only has 2 industry risk factors? For example, if I wanted just Tobacco and Healthcare industries as risk factors can I do that? If I did that do I have to ...
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### Risk-return ratio using ML default probability

I have access to a very large bond database (>20m rows) where 50% of the set are matured bonds for which a dummy variable identifies whether the bond defaulted or not. The remaining 50% are 'live' ...
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### What is a counterparty risk trading desk

Can someone explains what does the above mentioned desk do? What are their responsibilities and how do they manage them, where do they fit into the rest of the organization?
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### Quantitative model for investing in ETFs [closed]

I want to build a model for asset allocation of my own personal pension in ETFs across four main asset classes: equity, bonds, commodity and property. I am familiar with Python and the basics of risk ...
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### Flattening a Credit Loss Curve

I have a credit loss curve for 36 months and I want to transform that curve into a 20 months curve without changing its final loss. My credit loss vector is a % of unpaid principal balance in a ...
I'm trying to understand example 2.6 taken from McNeil and Embrechts "Quantitative Risk Management". The example consists of obtaining the risk mapping of a portfolio of $d$ zero-coupon bonds. The ...