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Questions tagged [risk-management]

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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Calculation of Daily Mark-to-Market Value of FX SWAP

What is the best method to calculate daily MtM (Profit/Loss) value of an below FX SWAP transaction? SWAP example: Contract: USDTRY Notional Amount: 1 million USD USDTRY Spot Rate: 30.00 (1 USD equal ...
Bünyamin's user avatar
1 vote
0 answers
39 views

Fitting a Copula with GARCH volatility to stock returns

I have the log-returns $r_{n,t}$ for 3 stocks, $n=1,2,3$, and $t=1,..,T=365$ days, and I want to model the expected shortfall given arbitrary positions on those stocks. I calibrate the GARCH model ...
Xerium's user avatar
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1 answer
117 views

not understanding ATR calculation

i don't quiet understand the result of the quantity of shares based on the ATR calculation (800(capital) * 3%(risk) / (2 * 0.44(ATR)) = 27, would the result be in shares?, because based on my risk per ...
bob mcgee's user avatar
11 votes
2 answers
884 views

Why are Black-Scholes derived greeks used for risk management when alternatives exist?

To my understanding, it is still quite common for market makers of vanilla options to use Black-Scholes greeks. My concern with this is best expressed by Pat Hagan in the original SABR model paper: &...
mrdrralph's user avatar
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JP Morgan CreditMetrics

I am trying to apply CreditMetrics on a 2 bond portfolio. As far as I know, this model returns the expected recovery rate and the volatility between those 2 bonds, so my question is how I calculate ...
polo_ hdz's user avatar
2 votes
1 answer
116 views

Liquidity Stress Test of Investment fund - Liquidation tracking error

It is my first message on this board, I have hesitated a few days before bothering you with my struggles, but I've seen a lot of very knowledgeable and patient people here willing to help out. I ...
Bourrinou3's user avatar
0 votes
1 answer
185 views

How to calculate VaR given mean and sd?

Sarah manages a hedge fund with a portfolio valued at \$2,000,000. The portfolio's daily returns have a standard deviation of \$3,000 and an average daily return of \$1,200. Calculate the five-day VAR ...
Ankita Datta's user avatar
1 vote
0 answers
104 views

How to adjust an assets position to target volatility in a long-short portfolio?

I have a portfolio of weights $\mathbf{x}$ where some positions in $\mathbf{x}$ are short s.t. $\Sigma_i x_i=0$ (dollar neutral). The standard way to estimate the volatility contribution per asset is ...
PyRsquared's user avatar
2 votes
0 answers
64 views

Portfolio construction: Over/underweighting assets with a given active risk budget

I am trying to refresh my knowledge of portfolio risk calculation but would like to get a second opinion on the best approach. I have a set of 10 assets that together make up the benchmark and I have ...
K. Leblora's user avatar
1 vote
1 answer
101 views

Value At Risk Modelling for electricity market with negative prices

I'm a bit at loss after trying to find papers regarding tail risk for electricity markets. There doesn't appear to be a whole lot of literature (or perhaps I haven't managed to find it) regarding ...
Alex's user avatar
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RFQ Engine design in Sell Side

I am new to the eTrading and RFQ world and am learning these applications / services used within sell-side orgs like Investment banks in some details. As Far as I know , the RFQ engine involves the ...
user69294's user avatar
2 votes
1 answer
174 views

Can Heston volatility model be used to calculate VaR or CVaR?

I'm just a beginner and third-year statistics major student. Based on what I read in some journal, most common model that used to calculate VaR or CVAR is GARCH. Is there any possibility that I can ...
rara8's user avatar
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0 answers
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Minimizing variance of market neutral portfolio given factor covariance matrix and stock return predictions

If I am given a return prediction and factor exposures for say 50 stocks, as well as the factor covariance matrix, what is the process to determine the weightings of the minimum variance portfolio, ...
helloimgeorgia's user avatar
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0 answers
62 views

Selection of Risk aversion in portfolio optimization

I have a portfolio of equities with a cross-sectional score as expected return (mean=0) and am using mean-variance optimization. However, the question is how one selects the risk aversion parameter. ...
herminat0r's user avatar
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1 answer
354 views

CS01 implied Var calculation

is there any straightforward way to roughly calculate the daily var from the CS01. Mostly from the corporate bond position. thanks,
zeng cece's user avatar
3 votes
0 answers
45 views

Active risk management of private assets

It seems incredibly difficult to not only come up with a list of options for active risk of private assets (Private Equity, Private Credit, Infrastructure, Real Estate, etc.) but also get senior ...
AK88's user avatar
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Optimal portfolio as combination of target and minimum tracking error portfolios?

Dear Quant StackExchange I seek some intuition for how my portfolio behaves given constraints. In a universe of say 5 assets, I have a "target portfolio" with weights that are found from ...
fdp1996's user avatar
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3 votes
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Methods to estimate Options volume

I need to build a Liquidity Risk report at my intern job. There, I consider an MDTV90 (Median Daily Traded Value for 90 days, a measure of liquidity) for each asset we trade to find how many days we ...
Fróis's user avatar
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1 vote
2 answers
200 views

VaR backtesting. Reasons for over- and underestimation of value at risk estimates?

I use an ARMA-GARCH model for univariate distributions and a copula model for the multivariate distribution. For the value at risk (VaR) estimation, I do a Monte Carlo simulation. I'm looking for some ...
daxson's user avatar
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0 votes
0 answers
49 views

Pricing and Risk Management of Exotic Options with a Volatility Surface [duplicate]

Bit of a newbie question; but I see this pop up from time to time. If we have a volatility surface (e.g. for the S&P500) built from market options what more can we do with it, but price other ...
Sinbad The Sailor's user avatar
1 vote
0 answers
31 views

How do I allocate between passive and active strategy using active risk budget?

Lets say I have 100 million dollars. My active risk budget is 5%. I have an active fund that has active risk of 10%. What will be my mix in dollar terms of this active port and passive etf (assume ...
Michael's user avatar
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3 votes
1 answer
476 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 ...
FISR's user avatar
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0 answers
127 views

How to calculate the ex-ante beta of a portfolio between several rebalancing?

I have a portfolio composed of $ N $ assets. I know the one-year beta of these assets, I also know the past (ex-post) beta ($\beta$) of my portfolio. My portfolio changes allocation every month. So I ...
TLS's user avatar
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1 vote
0 answers
49 views

Calculate fund size given risk limit?

I was listening to a podcast and this guy mentioned the following (literally): The entire group is probably running 800 million at risk. So I'm going to say like call that like a, if you think of ...
AK88's user avatar
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0 votes
1 answer
135 views

Roll down for floating rate notes

is it correct to say that floating rate notes (FRNs) have no roll-down for a time horizon as it is interest risk free?
Peaceful's user avatar
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1 vote
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422 views

Practical risk management on snowball autocallable portfolios

I am new to exotic options pricing and risk management. The scenario that I encounter is that the market maker sells snowball autocallable products(accumulated coupon) every trading day and has to ...
69hl's user avatar
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0 votes
0 answers
213 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 ...
Mostdoisneverdone's user avatar
0 votes
1 answer
128 views

Using LGD (Loss Given Default) in the trading of bonds

Do you use the LGD as a risk management tool when trading credit cash bonds? Or it's more for trading the loan product.
risknewbie's user avatar
2 votes
1 answer
2k views

the difference between CS01 and RS 1%

Please tell me the difference between CS01 and RST 1% (Relative spreads tightening by 1%) and how these two are used to monitor the credit flow traded product's exposures. Why would you use the spread ...
risknewbie's user avatar
1 vote
0 answers
79 views

Market risk factor proxies examples [closed]

I am reading some corporate documentation, including the notion of market risk factor proxy. Could you provide some examples of risk factors and their proxies? What I find obvious is the observable ON ...
Vnature's user avatar
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1 vote
0 answers
107 views

MonteCarlo Value At Risk for futures portfolio

I wanted to ask, suppose I have a portfolio of futures of gasoline and other oil products eg ULSD (Ultra Low Sulphur Diesel), WTI (West Texas Intermediate) for different months. I want to compute the ...
Hustler885's user avatar
2 votes
2 answers
5k views

Market Making Game Strategy with Information Imbalance

I have a final round with a market making firm coming up and will be asked to play several market making games. I wanted to ask for advice on how to approach these games, especially with an ...
Max's user avatar
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1 vote
1 answer
164 views

Why do companies trade options?

Companies buy options to reduce the variability in future cash flows. Institutional investors invest in portfolios to maximize return for a fixed amount of risk. If an investor owns stock in company A ...
user62863's user avatar
1 vote
0 answers
109 views

Techniques for proxying time series / stock prices

What are some good techniques for proxying time series? My purpose is for risk management / modelling and I would like proxy to missing series. Given that I also have to account for volatility, ...
Landscape's user avatar
  • 548
4 votes
1 answer
237 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 ...
AlRacoon's user avatar
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0 votes
0 answers
182 views

How to estimate the lambda parameter in EWMA in excel solver

So I have a simple enough assignment question. I was asked to find the EWMA for daily stock returns of a given firm. When I was answering the Garch problem, I had multiple variables- alpha, beta, ...
Shadman Haque's user avatar
0 votes
0 answers
54 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 ...
Arshdeep's user avatar
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0 votes
1 answer
73 views

IR risk sensitivity to curve instruments

I need to understand if the 2 approaches are equivalent: assume I am constructing a yield curve with N instruments. I would like to compute IR delta for a product using this curve. One approach is to ...
Medan's user avatar
  • 493
1 vote
0 answers
50 views

Core deposits forecasting in stress testing

I’m designing a stress test at a commercial bank. What are the advantages/disadvantages of forecasting core NMD deposits vs. total deposit balances?
ps0604's user avatar
  • 50
0 votes
2 answers
84 views

Does VaR calculations consider my portfolio past

I am relatively new to trading and decided to become more quantitative about it. I have had a portfolio for about two years, where I changed my positions several times. I now learnt about VaR ...
user1234's user avatar
1 vote
1 answer
137 views

Calculation of Total Credit Risk Capital % but seeing lower capital percentage for higher risk band. Is there any correction required?

I am trying to calculate the Total Credit Risk capital % for my learning purpose as given below. Assuming adding 1 single loan with different pds. i have noticed one point in the table and have two ...
user3762120's user avatar
3 votes
1 answer
563 views

Aggregating greeks to portfolio level

I have been asked to calculate/aggregate certain Greeks (delta, gamma, and vega) up to portfolio level for a portfolio consisting of a range of (long and short) equities, convertible bonds, and ...
MilesS's user avatar
  • 31
0 votes
1 answer
63 views

pooling equilibrium

I was hoping for some help on how to answer a question about pooling equilibrium. Suppose a bank wants to give loans of 1 million dollars to people, but it cannot differentiate between high risk ...
Alex G's user avatar
  • 1
0 votes
0 answers
60 views

Finding stock pairs whose spread is used for a risk neutral long-term investment

I am currently working on researching about ways to improve returns in pairs trading. I had previously posted a reference request here, where I had described a toy pair that seemed to be co-integrated....
TryingHardToBecomeAGoodPrSlvr's user avatar
0 votes
1 answer
838 views

How to set VaR and other Risk Limits

I have read a lot of literature on how to calculate VaR and it's advantages and disadvantages. But I am struggling to find anything on how to set a VaR limit. For example, say if I am a Risk Manager ...
NutellaMonster's user avatar
0 votes
1 answer
83 views

How to adjust a strategy's alpha assuming a zero-value starting portfolio (\$0 cash, \$0 assets)?

A simple paper test of a trading strategy is to assume one borrows all money to purchase assets and see if trading increases the liquidation value of the portfolio (cash + liquidation value of assets)....
James Bowery's user avatar
0 votes
1 answer
301 views

Strategies for trading on a forecast

I have been experimenting with multiple methods of forecasting the daily high and low for a certain security. I have found a very basic ensemble of several common forecasting approaches is, well, ...
andrewH's user avatar
  • 111
0 votes
2 answers
983 views

How to measure Steepener/Flattener/Butterfly sensitivity? (in 01)

This seems like a simple concept but I'm a bit lost. How can I calculate the dollar value sensitivity for a yield curve slope or butterfly position? I understand how DV01 can be calculated, but it ...
intern5ever's user avatar
2 votes
1 answer
153 views

Pragmatic question about use of Stress Tests/metrics

I have been looking at the onboarding of some derivative products, and the subject of our internal stress framework. I suspect like similar businesses, we have a set of stress scenarios, mostly based ...
Tom Weston's user avatar
1 vote
1 answer
334 views

ML in Factor Models

I have recently learned about (implicit) factor models of the form: $$ R = Xf + \epsilon $$ where $R \in \mathbb{R}^{n}$ are security returns, $X \in \mathbb{R}^{n \times F}$ are factor loadings for ...
Claudio Moneo's user avatar

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