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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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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 ...
Lisa Ann's user avatar
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7 votes
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Intuition behind the Carr and Wu (2014) static hedging for ordinary options

Let $(S_t)_{t \geq 0}$ be the price of an underlying asset, $r$ be the risk-free rate of return, $q$ the dividend yield, $C_t(K,T)$ is the price of a call option written on $S_t$ at time $t$ with ...
Stéphane's user avatar
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5 votes
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284 views

What put options would the Universa Tail Fund have bought?

According to this Bloomberg article, Universa was up 3,600% in March 2020, by hedging with extremely out-of-the-money puts: https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-...
Derek Shen's user avatar
5 votes
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325 views

First principles in Finance

Every so often I hear people referring to the term "first principles". It seems to me that this term does not necessarily have a universally accepted connotation in Finance. Here is the general ...
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4 votes
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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 ...
Marianna's user avatar
3 votes
0 answers
46 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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3 votes
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124 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 ...
Fróis's user avatar
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How to "best" exit multiple trades?

Let say I have N opened trades (N = s + b) that are partialy hedged, and paritaly not. In general s != b. Some of them are market sell orders (s), and the rest of them are market buy orders (b). They ...
Łukasz's user avatar
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3 votes
0 answers
302 views

Pricing/Hedging a yield curve spread option (YCS)

I have 2 perspectives as to what model to use for a YCS option: It is an at the expiry option, so hit the marginals, correlate them with a copula, and be done with it. To hedge the vega, I will need ...
Arshdeep's user avatar
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3 votes
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Using transaction data to predict default of the customer

I am trying to build a prediction model that utilize the huge transaction database of all the customers of a bank. My dataset currently looks like this: ...
PK1998's user avatar
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subadditivity of VaR

It is known that the VaR (Value at risk) doesn't fulfill subadditivity, i.e. $VaR(X)+VaR(Y) \le VaR(X+Y)$ But for elliptical distributions subadditivity is true. Questions: (1) Which ...
user20707's user avatar
3 votes
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268 views

Non-parametric estimator - CVaR / Expected shortfall

Is the estimation of the CVaR using known non-parametric methods (histogram, kernels) different than the estimation of any other R.V.? If the answer is yes, I am interested to know whether there are ...
pollJ36's user avatar
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3 votes
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conferences for credit portfolio managers

What are worth conferences for credit portfolio managers? I appreciate your recommendations! PS:I am aware that this question is not the typical quant.SE question, BUT I couldn`t find reliable ...
Carol.Kar's user avatar
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3 votes
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regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
Shubhangi Kulkarni's user avatar
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223 views

Quantitative risk management strategy for a large participant in an illiquid market

Are there any practical quantitative risk management strategies for a large participant in an illiquid market with a few dominant players? By a large partcipant I mean someone who has significant ...
Alexey Kalmykov's user avatar
2 votes
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65 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
2 votes
0 answers
118 views

Risk-managing vanilla books (sell-side)

I am interested in learning more about how traders risk-manage books of vanilla options. I presume there should be a fairly standard list of facts. For the moment, the area of interest is FX, as ...
fwd_T's user avatar
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Martingale corrections to historical Value at Risk?

I am looking for a bit of advice. I have recently used to a new firm, which uses Value at Risk in a manner that is unfamiliar from previous places I have worked that I find less than ideal. Previous, ...
Tom Weston's user avatar
2 votes
0 answers
119 views

Where could I find code to compute Potential Future Exposure

Ideally code in SAS, R, Python or Matlab for calculations involving counterparties holding positions in energy markets on multiple price curves, with a Monte-Carlo methodology or a simpified ...
AndrePoorman's user avatar
2 votes
0 answers
33 views

Formulating Deposit Rate Sensitivity to Market Rate Changes

I have historical deposit rate data for a specific bank. I want to determine the sensitivity of deposit rates to market rate changes (I'll be using Fed Funds rate). My question is, what would be an ...
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To price Municipal Bonds and risks I want to know the percent of unfunded pension liabilities ($3.8T) to total state and local gov liabilities

Unfunded pension liabilities keep growing and this seems alarming to both pension holders but also Municipal Bond holders. I would like to know how large this problem is to better price Munis and ...
JorgeT's user avatar
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109 views

Why not to maximize Sharpe Ratio directly when computing optimal allocation of an order?

I was reading the following paper of Engle about balancing transaction costs performance and risk: https://www.nber.org/papers/w12165.pdf He deals with finding the optimal placement of the child ...
FriedPanda's user avatar
2 votes
0 answers
98 views

Mean Variance Optimization vs Risk Scaling

What would be the difference between the following. Both techniques will result is an ex-ante risk of $\sigma$. However, that would be achieved via two different values of h. I want to understand ...
whisperer's user avatar
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Example of Coherent Risk measure with Compact Representation

Every coherent risk measure $\rho$ can be represented as $$ \rho(X)\triangleq \sup_{Q \in \mathcal{Q}} \mathbb{E}\left[ -X \right], $$ for a set of probability measures $\mathcal{Q}$ defined on the ...
ABIM's user avatar
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2 votes
0 answers
82 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 ...
bloodynri's user avatar
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2 votes
0 answers
78 views

Statistical methods to compare two financial series data

I have two financial series data, x and x', where x' was formed form ...
JungleDiff's user avatar
2 votes
0 answers
102 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, ...
QFqs's user avatar
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2 votes
0 answers
107 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) ...
Ana B.'s user avatar
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2 votes
0 answers
77 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. ...
Techonomist's user avatar
2 votes
0 answers
726 views

Optimal weights for portfolio optimisation (r)

The question is what R optimization could be applicable to find a vector of weights that when, multiplied by S matrix creates equal rows sums, and when set in the objective function returns the ...
user2948605's user avatar
2 votes
0 answers
437 views

Bayesian analysis in R: Probability of default, low default portfolios

I want to apply the knowledge of this paper (Bayesian estimation of probabilities of default for low default portfolios, by Dirk Tasche) in R, but I can't find the right bayesian package and functions ...
simmy's user avatar
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2 votes
0 answers
122 views

In May of 2005, several large hedge funds had speculative positions in CDO tranches

These hedge funds were forced into bankruptcy. This was due to: the correct answer is: Long Mezzanine and Short Equity Tranche position when correlation of Mezzanine tranche decreased. Can anyone ...
user37330's user avatar
2 votes
0 answers
542 views

Vol surface changes as underlying moves

We market make in highly liquid, near term options markets. I want to build a risk report that tells us how our portfolio's greeks will change as the underlying moves. This is for risk management in ...
Ted Graham's user avatar
2 votes
0 answers
88 views

Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?
Egodym's user avatar
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2 votes
0 answers
171 views

Commercial Vendors for Risk Management and Portfolio Optimization and Performance Attribution

So this question is directly about companies such as Axioma, Barra, Northfield, and etc. that provide risk management, portfolio optimization, and performance attribution related services. I want to ...
lex i con's user avatar
2 votes
0 answers
245 views

Risk measures, Risk Management and Financial Risk Area

I'm currently searching material about market risk and I learned about coherent risk measures, VaR, CVaR (or expected shortfall), volatility. All that because I have to make a Financial Risk Area for ...
rlartiga's user avatar
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2 votes
0 answers
189 views

Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
Greg's user avatar
  • 21
2 votes
0 answers
229 views

Market Exposure and Hedging

Normally the Market exposure associated with your stock/portfolio is your delta for that stock/ portfolio. Basic idea of hedging involved here is buying/selling respective futures depending upon ...
NewAlgo's user avatar
  • 21
2 votes
1 answer
190 views

Energy Risk Quant--Any discussion boards for energy related quant topics?

Any discussion boards for energy related quant topics? Like VaR in energy portfolio, and pipeline option pricing.. just want to know where is the best discussion board for such energy specific topics. ...
Elephant2015's user avatar
1 vote
0 answers
52 views

Volatility of S&P 500 based portfolios too low

I am trying to calculate the volatility of five portfolios consisting of S&P 500 stocks. The portfolios consist roughly each of 20% of the S&P 500 members between 2015-2022, rebalanced monthly ...
jjb97's user avatar
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1 vote
0 answers
42 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 vote
0 answers
111 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
1 vote
0 answers
87 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 ...
fdp1996's user avatar
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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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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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1 vote
0 answers
438 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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1 vote
0 answers
108 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
1 vote
0 answers
110 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
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
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1 vote
1 answer
138 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