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The possibility that a negative event (such as a loss) will happen.
1
vote
Accepted
Which measure to determine Risk?
I strongly recommend not assesing risk using the risk neutral measure. Doesn't this already sound like a contradiction (risk and risk-neutral)? … Coming up with an expected value different from zero you risk to mix up your "trading idea" with your risk measure - which is in my mind not a good thing to do. …
2
votes
How to determine portion of portfolio's risks from components?
You can do 2 things:
incremental risk:
Calculate the volatility with the asset and with the asset replaced by cash. … The difference gives you the (non-linear) incremental risk contribution of the asset. …
2
votes
Accepted
How to Calculate Minimun total Risk?
I assume that risk it measured here in volatility. … Thus we should invest all our wealth in stock A and the minimal risk is 25%.
If the volatolity of B were smaller it could reduce risk to invest in B. …
3
votes
1
answer
347
views
Risk and Reward in practice
As a risk manager I often have to tell portfolio managers to reduce risk (e.g. due to VaR limits or exposure limits). … What do you tell risk takers in order to tame their risk appetite? Where do you reference to in order to underpin your opinion? …
2
votes
Asynchronous Data Across Time Zones - RiskMetrics
as vanguard2k points out the prolem is dealt with e.g. in Scaling portfolio volatility and calculating risk contributions in the presence of serial cross-correlations and references therein. … But in my mind using daily data (and handling the effects described above) is superior in ex-ante risk analysis and portfolio optimization (more reactive, more data points). …
1
vote
Plain vanilla risk parity with trends forecasting power
Thierry Roncalli adresses the issue of expected returns in risk parity in Introducing Expected Returns into Risk Parity Portfolios: A New Framework for Tactical and Strategic Asset Allocation. …
0
votes
ex ante tracking error correlation between funds
It is unclear to me what you ask. You have the covariance matrix and today's weights - then you get an ex-ante TE. Why do you need ex-ante correlation? Ex-ante means that weights are fixed and you tak …
1
vote
Hedging using relative values
There are two things:
First: You have one stock of $B$ (worth \$30) and the calculation tells you to short 1.14 stocks of $A$. Of course you can only short whole stocks. So you would have to decide w …
0
votes
Parametric/Analytical VaR
Let's start with one observation: Take a random variable of the form $X=\mu + \sigma Z$ for some real $\mu$ and $\sigma>0$ then
$$
P[X \le x] = P[X-\mu \le x - \mu] = P[\frac{X-\mu}{\sigma} \le \frac …
1
vote
Accepted
Is Value-at-Risk translation invariant?
Translation invariance of a risk measure $\rho$ is defined as
$$
\rho(X+k) = \rho(X)-k,
$$
where $X$ is a random variable such that $\rho(X)$ exists and $k$ is a constant. … The meaning is that if I add an amount $k$ to my risky positions then the risk is reduced by this amount. …
3
votes
Why is variance problematic as a risk measure?
The next question is what the aim of your risk measures is. … portfolio B or my portfolio is riskier or less risky if I add/remove a tiny position in stock S then I would say:
Variance is (of course) as fine as standard deviation (volatility);
a Gaussian Value-at-Risk …
1
vote
How is VaR calculated with mixed return-periods
There are several aspects:
The holding period that you want to measure:
Usually, you want to calculate VaR for a specified holding period. For USCITS funds it is e.g. 20 days for bank pillar 2 regulat …
1
vote
0
answers
208
views
Estimate the risk of swaptions
I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg.
For 10Y X 10Y (10 years option matur …
2
votes
Convex risk measure and a coherent risk measure?
We define a convex risk measure as
$$
\rho( \lambda X_1 + (1-\lambda) X_2) \le \lambda \rho( X_1 ) + (1-\lambda) \rho(X_2),
$$
for $\lambda \in(0,1) $. … Thus a coherent risk measure is convex. The reverse is not true in general. …
6
votes
Accepted
Calculate VaR for a liabilty taking a exponential distribution?
The VaR of level $\alpha$ a loss random variable (the bigger the worse) is the quantity $q$ such that the loss is bigger with probability $1-\alpha$.
Thus we need a $q$ such that
$$
P[L>q] = 1-\alp …