# Questions tagged [risk]

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

534 questions
Filter by
Sorted by
Tagged with
40 views

### Marginal Risk Contribution under Factor structure

Given the factor structure below with K factors, the return for N assets is given by (under matrix notation): $R =\alpha + \beta F + \epsilon$ where $F$ is matrix of K factor returns and $\beta$ is ...
41 views

### Swaption risk bucketing

In the IR swaption market, we have 24Expire10Tenor instruments(like a 2410 Matrix). Now I have the Vega number for each instrument, and I want to reduce the matrix size with the same total vega risk. ...
• 41
61 views

### For mean-variance portfolio optimization, shouldn't all the allocations sum to 1?

Reading a paper by Black and Litterman, I'm having trouble understanding the set of valid allocations in which we're trying to optimize expected returns. In Table III, the authors show two portfolios ...
1 vote
41 views

### What does a portfolio risk of 20% mean?

From the book Active Portfolio Management there is a use of lingo I don't understand. Take this quote from pg. 100 "Why are institutional money managers willing to accept the benchmark portfolio ...
• 165
1 vote
78 views

### The option is "purer" in its risk---what is meant by this?

In the book "The Concepts and Practice of Mathematical Finance" author M. Joshi writes on page 12 the following: "From the point of view of risk, we can regard an option as an attempt ...
1 vote
133 views

### Simple (?) question about expected bond returns

Newbie here. I should say upfront that I'm not a quant, just someone trying to broaden his knowledge of fixed income investing. I apologise in advance if I'm mangling some terminology. Imagine a ...
• 11
148 views

### What is Leverage?

What would you consider leverage? I know this may sound like a basic question but I have spoken with several industry professionals with a significant amount of experience and all of them have a ...
• 5,285
1 vote
104 views

### Help with simple derivation of probability of credit default

I'm going over a chapter in Hull's Options, Futures, and Other Derivatives and am stuck on how the probability of default is derived. Here's the image of the derivation. I can follow all of it except ...
• 113
92 views

### Introductory Books to Network Theory

Can anyone please suggest a good introductory book to Network Theory which is the area of mathematics that is widely used for systemic risk and contagion modeling in finance. If the book contains some ...
• 295
50 views

### Risk premium of insurance risk

I recently came across an equation in a paper. In short, suppose that $I(t)$ denotes a longevity index at time $t$. An informative indicator that is useful in the absence of any information about the ...
• 409
57 views

### Pareto comparison of return distributions

In making a choice among financial strategies, each of which has some estimated return distribution, some strategies will clearly be better than others. But many times, the choice is a question of ...
50 views

### Does tail risk disappear in the long horizon in any rolling over strategy with shorter frequency?

Say I am investing to gain weekly yields ${y_{i}}$ for over a year, gaining the overall yield: $\prod_{n=1}^{52} (1+y_i) -1$ The most dominant term in the above product is the sum of all yields, which ...
• 1,662
1 vote
280 views

77 views

### Risk sensitivities of equity TRS

If we go short on an equity TRS (as in we sell the swap and pay the equity returns). Is it correct to say that we are: -Short spot -Long borrow cost -Long interest rate (the rate benchmark of the ...
79 views

### Why is the interest rate risk secondary for a vanilla equity option?

Consider the vanilla payout: $Max(S(T)-K,0)$ priced under the RN measure as: $E[e^{-rt}Max(S(T)-K,0)]$ which under no dividend/borrow assumption equals $E[e^{-rt}Max(S(0)e^{rt}X(T)-K,0)]$ for $X$ ...
• 1,662
59 views

### Identity of recent books on stock market & risk

Apologies if this seems out of place, but a couple years ago I read several popular books written in the last decade by a single author who was trying to disabuse readers of several fallacies ...
• 111
33 views

### How to find percentage of FX exposure hedged through financial statements

I am analyzing a company's annual report, and wish to find the percentage of FX exposure they have already hedged. I have the following information: The net FX exposure for 4 different years The ...
• 41
40 views

### Price of a floating coupon bond with issuer credit risk and recovery rate

I need help. I have an assignment for an exam where i have to compute the price of a portfolio composed by floating coupon bonds taking into account the issuer credit risk and the recovery rate in ...
1 vote
2k views

### Quick rule of thumb for DV01 and CS01 calculations

If someone tells me there is a IRS and a CDS both with 10M notional and 5y maturity, is there a reliable quick calculation that I could easily do mentally to approximately calculate their ...
• 41
112 views

### Why is infimum chosen to define value at risk as opposed to the minimum?

I believe that the VaR is defined as the infimum of the generalized inverse of the CDF of the loss function (something like that, please correct accordingly): \text{VaR}(\alpha)=\inf\{x: F_L(x)\geq \...
136 views

### Non financial risk management

I am looking for some discussion papers, research insights on the Digital risk for fintech companies, bank etc. what they should. consider when offering their services (banking, lending etc.) ...
• 211