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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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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, ...
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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. ...
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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,
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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Contribution to Drawdown?
I am trying to learn about the contribution to drawdown as a risk measure. While it is common to look at volatility and VaR/CVaR contributions, I have never seen the contribution of each portfolio or ...
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Risk factor return data [duplicate]
I’m trying to create a risk model for equities, bonds and hedge funds.
Anyway I can access macro, style factor return?
I’ve tried Kenneth french data library for equities style factors but I still ...
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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 ...
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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?
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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 ...
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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 ...
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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.
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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, ...
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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 ...
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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, ...
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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 ...
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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 ...
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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?
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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 ...
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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 ...
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May banks ignore the vol surface for far OTM, distantly-dated options, and make risk decisions only on near-term implied ATM vol?
Here is a difficult "real-life" skew / surface options problem that actually occurred. Please help me judge its validity or falsity.
In 2018 a Chinese communications stock was falling, and ...
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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 ...
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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 ...
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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....
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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 ...
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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)....
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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, ...
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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 ...
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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 ...
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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 ...
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Filtered Historical Simulation VaR for swaps
I am trying to understand how to calculate FHS VaR for a portofolio of vanilla swaps. I think I understand the main ideas behind FHS VaR and how to implement it for other assets such as equities. I ...
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How do I estimate the factor sensitivity in a Vasicek Single Factor Model?
I understand the formula of an asset return for an obligor i is given by the following:
$$A_i = \sqrt{w_i}*Z + \sqrt{1-w_i}*\epsilon_i
$$
My question is - How do I calculate $w_i$? I have the PD, LGD ...
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