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Results tagged with risk-management
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user 31263
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.
2
votes
how do we use portfolio optimization to hedge an existing portfolio?
Let us fix the asset universe with $N$ assets whose returns are multivariate normally distributed with covariance matrix $\Sigma$. You are already invested in $K<N$ assets (your portfolio) and you wis …
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1
vote
Minimum Variance Hedge Ratio and Risk Capital Relation
Without a risk free investment, the efficient frontier is described by a hyperbola, as you have already suggested.
Efficient Frontier: Tour de force
Given asset covariance matrix $\Sigma$ and the f …
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1
vote
Value at Risk (VaR): Normal distribution with gamma distributed volatility
You might want to have a look at the conjugate priors to the normal distribution (with known mean) Your setup will result in a $t$-distributed return with updated dispersion parameter.
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2
votes
Accepted
Dependence between Credit Default Risk and Credit Spread Risk
Commonly, the definition of credit risk is the risk that, over a given time horizon, at a certain confidence level, names in our credit portfolio deteriorate or even default, leading to a (present val …
- 7,140
2
votes
Accepted
Does VaR calculations consider my portfolio past
In (value at) risk calculations, we are commonly interested in the risk of changes of the value of our portfolio that are induced by external factors, i.e. thru changes in market prices.
To that end, …
- 7,140
1
vote
pooling equilibrium
I'd argue as follows. Let there be two borrower groups, $l$ow risks and $h$igh risks. The population fractions are $w_l$ for the low risks and $1-w_l$ for the high risks. Their default probabilities a …
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4
votes
Accepted
Correlation for Trading vs. Risk Management
Good question!
I think there's some semantics to be thought about first:
The word Hedging commonly implies that you want to hedge the changes in the present value of your total position ($\Pi=PV(A) +w …
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2
votes
Accepted
Testing severity of VaR by changing portfolio component weights
In R, the simplest way to brute force through a predefined number of portfolio combinations would be to simply iterate over them:
set.seed(42)
returns <- matrix(rnorm(200),40,5)
weights <- list(c(1,0, …
- 7,140
3
votes
Filtered Historical Simulation VaR for swaps
Adding to Dimitris' answer (this is a too long for a comment)
Proceed as follows:
Identify risk factors $r^{(i)}$, $i=1\ldots n$. Say the absolute returns of the pillars 1Y,2Y,...30Y of the discount …
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