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3

This problem can be addressed efficiently by linear programming. An (in my opinion) even better reference than the original paper by Uryasev, Rockafeller provided by noob2 is "PORTFOLIO OPTIMIZATION WITH CONDITIONAL VALUE-AT-RISK OBJECTIVE AND CONSTRAINTS" by Pavlo Krokhmal, Jonas Palmquist, and Stanislav Uryasev in The Journal of Risk, V. 4, # 2, ...


1

This looks like a classic real options problem. Essentially, each decision is an option which will be chosen strategically: the owner will chose a vector of actions from all possible actions, $A\in\mathcal{A}$, that maximizes expected utility given the distributions of key variables and outcomes. If the owner is well-capitalized, maximizing the expected ...


3

The answer to your question could fill an entire asset pricing text book. Your question mixes theory and empirics. A different way of looking at it is to look at the identity: $$ 1 = E[M_t R_t]$$ To generate a sufficient risk premium either you need to have the covariance of the SDF with the the return to be sufficiently high. Campbell and Cochrane basically ...


3

The cash flow news / discount rate news decomposition is given by $$r_{t+1}-\mathbb{E}_t[r_{t+1}]=(\mathbb{E}_{t+1}-\mathbb{E}_t)\sum_{j=0}^{\infty}\rho^j\Delta d_{t+1+j}-(\mathbb{E}_{t+1}-\mathbb{E}_t)\sum_{j=1}^{\infty}\rho^j\Delta r_{t+1+j},$$ where $r_{t}$ is log-return $d_{t}$ is log-dividend and $\rho$ is a constant. This follows directly from the ...


4

Just adding the time/frequency dimension difference to what was said above: model backtesting is a model performance technique which takes place on an ongoing basis (in particular for VaR, breaches need to be discussed as soon as feasible after they take place; if there are too many over some period of time, they need to be escalated). Model validation takes ...


2

"Validation" means that someone analyses the model and pronounces it fit to be used, usually subject to conditions such as ongoing performance monitoring, and restrictions on input. Good industry practices include 1 for the validator to be independent from the model developer 2 to review and re-validate important models periodically. "Ongoing ...


2

In my opinion model validation is broader than model backtesting. During model backtesting you test model performance on data that has been realised using only the data you could have used when using the model for risk management. This gives you an idea on model accuracy and it allows you to find out where the model or submodels are inaccurate or misleading. ...


0

Position sizing, in and of itself, is insufficient to manage risk trading any financial market. You also need to be well informed about the expected ranges of prices on the particular instrument you are using. You can use aggressive position sizing, but you'd have to modify the martingale so that you are not strictly using 2x, 3x, etc on each level. ...


2

There are many margins, you have to be more specific. Are you interested in CCP (Counterparty Clearing House) margin, OTC products margin? The former are CCP-specific, and the latter are governed by the SIMM ISDA model.


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