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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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52 views

Risk management tools for long term Gamma/Vega sellers subject to margin calls

TL;DR: if you're a retail investor and you systematically sell long-term vertical spreads while staying Delta-neutral, your main risk comes from Vega and the Gamma of opening gaps that can throw you ...
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2answers
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How to calculate the multi-asset class portfolio vega?

I am viewing a risk report of a hedge fund and the portfolio vega seems to be a plain summation of the vegas of the different asset classes the fund invests in (i.e. Equity, Credit etc) As far as I ...
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59 views

Klein and Chow Orthogonal Transformation - Lowdin Orthogonalization

I've doing research on the orthogonal transformation in Orthogonalized Equity Risk Premia and Systematic Risk Decomposition They borrow a mathematical technique called symmetric orthogonalization ...
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49 views

Pricing default risk in cryptos

I'm looking to figure out how to price "insurance" against a counter-party defaulting in an OTC cryptocurrency transaction. I think the first measure would be to calculate VaR? I'm planning on ...
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58 views

Statistical methods to compare two financial series data

I have two financial series data, x and x', where x' was formed form ...
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0answers
88 views

Portfolio risk analysis

I would like to ask you if somone knows how to generate risk measures (such as VaR, Beta, Drawdown, Volatility, etc...) over a Portfolio that hold positions for approximately 7 working days. Imagine ...
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1answer
39 views

Risk attribution model without weights data

I was just wondering if there are risk attribution model that does not require the asset weights data. It appears that most risk attribution models do require asset weight data. I am looking for model ...
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40 views

Calculating daily underlying move from options volatility?

My broker has provided a risk report that shows our options book shocked at various standard deviation moves of the underlying. Their report has the future at $66.64, ATM Vol at 23.74% with 2 days ...
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54 views

Constrained Optimization for performance attribution

I am trying to perform constrained opmitization for portfolio performance attribution analysis. Specifically, I am trying to determine the impact of sectors performance on the S&P 500 index. Min ...
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72 views

Backtest Portfolio Analysis

I actually finished an algorithm that i can use to extract all the trades for each stock (each file for each stock). Essentially, i run this code on Excel where there are the input about one stock, ...
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31 views

How to compute the portfolio risk when weights are negative?

In QMiF (p. 239) , the variance of a portfolio is defined as: V(R) = w'Vw = w'DCDw = x'Cx Does this formula hold if the weights are negative (i.e., short)? For example, if I have a 5x5 covariance ...
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1answer
193 views

Absorption ratio by Mark Kritzman

In Principal Components as a measure of systemic risk, the author Mark Kritzman defines absorption ratio (AR) as the fraction of the total variance of a set of asset returns explained or absorbed by a ...
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40 views

CreditGrades model calibration and initial values

Currently doing a project on structural models, and I want to apply the CreditGrades model. My question is what values are the parameters going to take, in order to update the implied probability of ...
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21 views

Calculating Flat Price Risk for Physical Commodity Trades

I've been reading Craig Pirrongs Economics of Trading Firms published by Trafigura: https://www.trafigura.com/media/1364/economics-commodity-trading-firms.pdf Very informative read. The point I have ...
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35 views

Jump diffusion model and Firm probability of default

I want to examine whether corporate events affect firm's probability of default. My initial thought was a jump diffusion model, although in the literature, the only work I found, involved CDS market ...
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1answer
70 views

Using option pricing methods to model real asset liquidity

Liquidity risk (in the sense of asset exit risk) is warranted on investments that may not be easily divested at the going market or fair-value price. I am looking at a portfolio of private assets ...
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2answers
134 views

Risk Parity / Equal Risk Contribution with Tail Risk Measures

Risk Parity or (synonymous) Equal Risk Contribution is an approach to portfolio construction which could work in theory with a broad class of risk measures. Yet, all references I have found so far ...
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22 views

z-score of an active return with a no-volatility benchmark

I don't know how to approach the problem I am having. Basically, the statement I am trying to make is: the fund's return is X standard distribution away from the mean. Normally, for a single fund, ...
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22 views

Altman Z-Scoring and unknown variables [closed]

Assume we have the known Altman Z-Scoring model $Z= 0.012X_1 + 0.014X_2 + 0.033X_3 + 0.006X_4 + 0.999X_5$ But the variables $X_i ,i=1,2,3,4,5$ are unknown. Is it statistically correct to make an ...
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14 views

DCCfit speed up formula

I am estimating the covariance matrix by using GARCH DCC model with function dccfit from package rmgarch. My code is something like: library(rugarch) library(rmgarch) ...
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0answers
29 views

Cramer-Lundberg: Adjustment coefficient does not exist

The question is about Ruin theory and the Cramer-Lundberg model. I am wondering if there is an example of distribution where the MGF is finite, but the adjustment coefficient does not exist. Can you ...
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1answer
65 views

Using Normal Distribution to forecast active return

I wanted advice on how to go about forecasting active return via a standard normal distribution, The asset is a security with annual volatility of 6%. The benchmark is a 5% annual return with 0% ...
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1answer
52 views

Value-at-Risk and dividend payments

How should dividends be considered when computing Value-at-Risk for a stock portfolio using Historic data. To simplify let's consider a very simple portfolio of one long position on a stock. My VaR ...
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question concerning SMM and CPR in prepayment model

assume that I have a monthly time series of SMMs (single-month mortalities) $(SMM_t)_{t \in \{1,\dots,T\}}$. My goal is to determine one single CPR (constant prepayment rate) from that. I see two ...
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50 views

Stop loss strategy using options

I normally trade stocks using Robinhood, and use a simple stop loss strategy for 2:1 P/L trades. I recently got invited to use their options via their phone app, and was interested in trading some ...
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1answer
158 views

Semivariance calculation (downside deviation)

what is the accurate formula for semivariance? I see two versions up to now: this version which considers as N (denominator) all the numbers over/under the mean-or any other number. This is the ...
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36 views

How can I find what Loss Given Default to use

I want to come up with the appropriate loss given default for a commodity derivative in my CVA calculation. would anyone know where I can find this information?
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1answer
79 views

Where can I find free security and derivative pricing software?

I am looking for a free derivative valuation software that can compute value and sensitivities. It should be easy and straightforward to use, e.g., I can get results by supplying market data and trade ...
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0answers
23 views

Goodness of fit test for different classes of copulas

The question is: how the goodness of fitting for different copula-function can be compared. I can compare them by AIC criteria since they belong to the same class (for example elliptical). But how can ...
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1answer
63 views

Measuring interest rate sensitivity for illiquid private investments?

There seems to be surprisingly little literature on this topic. If you had a portfolio consisting of an unlisted illiquid private asset class (eg private real estate, direct infrastructure or private ...
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42 views

Portfolio Duration Immunization Strategy Intuition

It makes sense if we think of portfolio duration with duration, say 6, as a 6 year zero bond which you will receive the amount at maturity no matter the interest rate change. But if we define duration ...
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1answer
112 views

Risk Management methods for Stock portfolio with ~30 stocks

What is ideal Risk Management method/methods s for stock portfolios with 25-30 stocks and around 50.000 USD invested in those stocks. Every stock bought will be kept in the portfolio for 1 to 12 ...
2
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1answer
57 views

Structured product sellers and div swaps

From a Barclays primer on dividend swaps: We note that for shorter periods of time, implied dividends can be more volatile than spot as dividends often trade away from ...
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53 views

Methods to generate multiple yield curves

I need to run a model to value bank mortgages using a Monte Carlo simulation, where mortgages will be valued based on future interest rates. To that end, I build a yield curve taking rates of US ...
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95 views

Multiple regression on hedge fund returns

I have a data set of long/short equity hedge funds returns and their associated benchmarks (market indices). I need to form multiple regression on the fund returns using the benchmarks returns as ...
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24 views

What are the key risks to manage in a option on a vol target index?

What are the key risks to manage in a option on a vol target index from trade date to maturity?
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3answers
117 views

Does longer time horizon necessarily imply reduced risk?

Is there a mathematical/statistical basis for the commonly-held belief that the longer certain assets (particularly equities) are held, the less risk the investor is exposed to? Alternatively, is ...
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0answers
41 views

VaR decomposition of non-normal portfolio by g-and-h distribution

According to Doowoo Nam (2013), VaR of non-normal portfolio returns approximated by g-and-h distribution can be decomposed pretty much in the same way as the VaR of a portfolio with normal returns. ...
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1answer
146 views

Exposure calculation of a re-coupon swap

How to calculate the exposure of a recoupon swap (when the MTM of an i.r. swap is settled and the fixed rate is reset to the prevailing swap rate for the residual maturity). It's used to reduce the ...
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1answer
129 views

Intuitive explanation for expectiles

I am looking for an intuitive explanation for expectiles. Here is a link to a paper about expectiles: Bellini and Di Bernardino: Risk Management with Expectiles, European Journal of Finance, May ...
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1answer
157 views

Can portfolio Value-at-Risk be calculated analytically for multivariate t-distributed returns?

It is widely known that VaR is generally not sub-additive in all but the most restrictive cases (typically when a Gaussian return distribution is assumed, which fails when it matters the most). ...
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1answer
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How do energy companies measure the magnitude of the risks of buying energy at a variable price and selling it at a fixed price?

Power and gas retailers are exposed to a variety of risks when selling to domestic customers. Many of these risks arise from the fact that customers are offered a fixed price, while the retailer must ...
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115 views

Berkowitz test for CVaR backtesting

I want to test CVaR using the Berkowitz test (focus on the left tail). I have a couple of doubts: Do I need to transform only actual losses that are above CVaR; In the first transformation, whether ...
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64 views

Calculate VaR using the extreme value theory

I am trying to calculate the Value at Risk for different models. But I am now confused for some reason. Could you please help me? I calculate the 1% and 5% VaR (so negative numbers) and I am also ...
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101 views

Portfolio risk decomposition using historical data: which weights to use for assets?

I am trying to decompose portfolio risk given historical returns of each asset in the portfolio. For a basic 2 asset portfolio, the portfolio risk is given as $$σ_p^2 = w_x^2 \cdot σ_x^2+ w_y^2 \...
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40 views

Tradeoff between Omega ratio and annual return

I was optimizing weights of constituents in a portfolio with regards to Omega ratio. The optimal portfolio had 8015% annual return with Omega ratio of 2.10. Then I constructed another optimal ...
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2answers
529 views

Hierarchical Risk Parity with allocation constraints?

In the really interesting paper by Marcos Lopez de Prado a variation of risk parity is applied whereby the underlying assets of the portfolio are first split in 'correlation clusters' and the ...
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1answer
236 views

PRIIPs Category 3 risk-free discount factor - MRM and Performance scenarios

PRIIPs regulation Annex II (MRM) states in point 16: "The VaR shall be the value of the PRIIP at a confidence level of 97.5% at the end of the recommended holding period discounted to the present date ...
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1answer
102 views

Expected shortfall minimization as portfolio objective

I'm trying to solve portfolio problem with minimising its Expected shortfall, assuming the returns follow a stable distribution. If I'm able to calculate MLE fit to the series, calculate expected ...
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67 views

Net Exposure of FX Future

I'm a software developer currently working for an asset manager in their Risk department. I'm looking at Currency Futures and have a question I was hoping someone could put me right on. If I have a ...