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.

Filter by
Sorted by
Tagged with
3 votes
2 answers
1k views

Construct a butterfly interest rate portfolio to eliminate PCA exposures

I have data from 2012 to 2016 for interest rates whose term range from 2 month to 30 years, a total of 10 Principal components can be calculated. Then I want to construct a portfolio, $$WFLY = w_1 *5Y ...
4 votes
1 answer
1k views

Modified duration in multi-currency portfolio

I was thinking about how to figure aut duration for portfolio of bonds denominated in different currencies… I would like to compare sensitivity of portfolio to shift of yield with competitive ...
0 votes
1 answer
226 views

Looking for non-GAUSS Code for Thiery Roncalli's book on Risk Parity and Budgeting

I am going through the book 'Introduction to Risk Parity and Budgeting' by Thierry Roncalli (2013). The author provides software for the various concepts illustrated in the book, but it is all done in ...
1 vote
1 answer
125 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 ...
0 votes
1 answer
112 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?
13 votes
1 answer
2k 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 ...
1 vote
1 answer
786 views

Manually calculating and backtesting VaR and CVaR from DCC-GARCH R

I estimated a GARCH fit to the log returns of three series (CAC 40, a french real estate index and french T10 bond yield series) using rugarch. I then manually ...
2 votes
1 answer
100 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 ...
0 votes
1 answer
149 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 ...
1 vote
0 answers
70 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 ...
0 votes
1 answer
222 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,
0 votes
1 answer
219 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.) ...
2 votes
0 answers
55 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 ...
1 vote
1 answer
91 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 ...
0 votes
0 answers
72 views

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 ...
18 votes
3 answers
5k views

Papers about risk management in algorithmic trading?

I am currently doing my research for my master thesis, which will clearly focus on the question of risk managment in algorithmic trading systems. I have done research about this topic and found some ...
2 votes
1 answer
140 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 ...
0 votes
2 answers
861 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 ...
0 votes
0 answers
49 views

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, ...
3 votes
3 answers
2k views

Simple strategies for tail risk hedging that retail investors can use

Universa Investments run by Mark Spitznagel popularized the idea of portfolio insurance (also known as tail hedge) protecting the investor against severe market declines (tail risks). By using this ...
4 votes
2 answers
193 views

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 ...
0 votes
0 answers
48 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. ...
3 votes
2 answers
588 views

Portfolio Systematic Risk, Breaking it down into factor % contributions

I have a portfolio (p) of N equities, with let's say weights vector (m) at the start of the calculation period. Each equity has its own set of factors (like corresponding country, industry index, etc.)...
1 vote
2 answers
169 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 ...
3 votes
0 answers
40 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 ...
3 votes
0 answers
118 views

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 ...
2 votes
0 answers
70 views

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 ...
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 ...
0 votes
0 answers
48 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 ...
1 vote
0 answers
29 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 ...
3 votes
1 answer
428 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 ...
0 votes
0 answers
95 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 ...
0 votes
1 answer
272 views

Basic Metrics for Option Trading Limits

Imagine a trading house that trades options, and is looking for simple but effective metrics over which trading option limits will be set. Which ones should it choose? Some random thoughts: VaR is ...
1 vote
0 answers
47 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 ...
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 ...
1 vote
0 answers
352 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 ...
0 votes
1 answer
113 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.
0 votes
0 answers
172 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 ...
49 votes
8 answers
51k views

How does the "risk-neutral pricing framework" work?

I've struggled for a long time to understand this - What is this? And how does it affect you? Yes I mean risk neutral pricing - Wilmott Forums was not clear about that.
0 votes
2 answers
217 views

Why not calculate Kelly using semivariance? As w Sortino

Kelly is calculated as mu / sigma^2. If we remove our highest performing returns from our calculations this actually increases our Kelly leverage, which does not make sense to me. A less profitable ...
1 vote
0 answers
73 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 ...
1 vote
0 answers
101 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 ...
0 votes
2 answers
456 views

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 ...
1 vote
1 answer
2k views

Market risk FRTB: calculation of Vega risk charge

I recently started working on a project that requires me to deal with the new market risk standard issued by the Basel Committe: https://www.bis.org/bcbs/publ/d457_faq.pdf I am trying to calculate ...
4 votes
1 answer
221 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 ...
1 vote
1 answer
526 views

What are "df", "t", and "p" in these sharpe ratio related estimates?

I am looking at some sharpe ratio related estimates and have not seen Sharpe stats broken down this way before. I don't know what is meant by df, t, and p. Can someone explain that to me? Thank you!...
4 votes
3 answers
1k views

Deep Reinforcement Learning in Quant Finance?

I've been struggling to find engaging papers on the application of deep reinforcement learning in quantitative risk analysis, portfolio management, algorithmic trading and/or options pricing. What are ...
5 votes
2 answers
608 views

ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
7 votes
2 answers
957 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 ...
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 ...

1
2 3 4 5
9