# Questions tagged [risk]

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

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### PCA risk modelling

Been doing loads of reading about PCA, FA and SVD but still fail to understand the fundamentals of how PCA links with factor analysis in the context of risk modelling. Here is where I'm stuck: Given a ...
• 1
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### Scenario probability in portfolio optimization

I have few questions regarding linear programming formulation of expectile-based portfolio optimization. From this article on page 51 the LP algorithm is presented. And the problems are that I don't ...
64 views

### Decompose portfolio in factor risk

I am reading the risk chapter of Grinold Active Portfolio Managment. I understand how to calculated specific and factor risk of my portfolio, what I don't understand is how to calculate how much risk ...
• 101
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### Improving Portfolio Optimization on a Mean-Variance Basis

Is there a point to conduct research to improve mean-variance optimization (MVO)? Because I understand that most of the poor performance in MVO is a result of the estimation error in expected returns. ...
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42 views

144 views

### Risk of bond calculation

I am studying a course and I am a bit confused on how to find the a bonds $\sigma$. My course mentions the following: Once calculated the expected returns on the bond $\mathrm{E}(r_d)$, we can ...
50 views

### Intuition behind risk-return realation (Mark Joshi's concepts 1.2) [closed]

In Mark Joshi's "The concepts and practice of mathematical finance" section 1.2, it is given an intuitive motivation behind "high risk high returns" claim. It goes as follows: ...
287 views

### If I know the Price, DV01, and Duration of a Fixed Income instrument, is their approximation for the Convexity?

As the title says, I am looking to see if there is a good approximation for the convexity of a Fixed Income instrument. Say I know all the parameters of the instrument, can the Convexity be written as ...
• 133
485 views

### High-frequency risk management methodologies

In a high-frequency environment, such as a proprietary trading firm or market making firm, the primary goal of the risk management team would be to limit potential losses, but how is that done in this ...
• 117
225 views

### Derivation of optimal portfolio weights using Risk Budgeting approach

In Thierry Roncalli's book Introduction to Risk Parity and Budgeting (2013), he gives an example of particular solutions to the Risk Budgeting portfolio such as for the $n=2$ asset case. The risk ...
• 117
1 vote
181 views

### How to construct a forward exposure portfolio with bonds?

I was asked in an interview to get an exposure to 5Y5Y forward rate using bonds alone. Essentially it is short 5Y bond and long 10Y bond, and I needed to compute the relative weights. Regarding risk: ...
• 11
1 vote
208 views

### Alternative form of mean-variance optimization that uses standard deviation

I'm curious about an exercise found in Optimization Methods in Finance. Exercise 8.2 (pg 143) explores a variant of the more commonly used form of MVO. When I refer to the more common variant I'm ...
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1 vote
265 views

### Maximizing Mean+Variance in a Portfolio

Mean-Variance optimization trades off expected returns with portfolio variance. The idea is that excess variance is not desirable. But what if you weren't averse to high variance and you wanted to ...
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1 vote
68 views

### How can I correctly assess the risk of real estate debt fund? [closed]

I'm trying to assess the attractiveness of real estate debt funds. I'm very surprised when I look at the investment performance of many of those funds. Many of them have no negative returns, and can ...
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2k views

### Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?

I have persistent, deep problems with the concept of 'risk-neutrality'. To make it more precise, let's look at the following explanation taken from a book: "In a world where investors are risk ...
58 views

### Cohort-based model vs. population-based model for mortality

A cohort-based model groups individuals with at least one common characteristic over a period of time through a state-transition process. A population-based model reflects as much information as ...
1 vote
125 views

### Minimizing variance of a long short equity portfolio in practice

I understand the finance 101 explanation of how to minimize variance of a long-short portfolio using a covariance matrix. I also know that it doesn't really work because the covariance matrix is ...
415 views

### How to annualize sharpe ratio using quarterly data?

Say I have quarterly returns data for a stock. I am currently calculating rolling Sharpe ratios using an eight-quarter forward window. So for example, say I have quarterly returns data starting in ...
• 101
226 views

### FX Risk Reversal - RHS/LHS - Strike adjustments

I was wondering why ppl use the wordings being „rhs/LHS“ right hand side / left hand side when having an risk reversal for example Long EUR Call / USD Put and Short EUR Put / USD Call. Do they refer ...