Editors Letters Alternative Investments Risks and Rewards

Table of Contents

Barbakadze to Lead Structured Credit Unit at F&C

Seeking higher returns and better fund leverage, investment management firms are now allocating more resources to alternative investment strategies. However, firms that invest in these strategies must also contend with illiquidity, difficult valuations, reduced transparency and other risk-related challenges. Brenda Boultwood breaks down the trends and the risks in this ... click here for more details.

What is expected shortfall (ES) and how does it differ from VaR? What steps can one take to calculate ES/VaR ratios, and do these ratios provide an understanding of the tail of the distribution of a portfolio? Donald J. Smith andYu Wang run simulations of normal, log-normal and Student t distributions ... click here for more details.

What steps should you follow to calculate the credit risk of securitization tranches? How are loss distributions for the reference portfolio and the securitization pool factored into this process? And what role does economic capital play? Viktor Tchistiakov examines the complexities of securitization tranches and outlines a framework for quantifying the ... click here for more details.

Is our desire for glory greater than our fear of tragedy? Do we desire stardom more than we fear obliteration? How willing are we to risk the latter in order to achieve the former? Pablo Triana seeks some answers to these interesting questions by comparing and contrasting the opposing strategies of ... click here for more details.

Financial institutions can use credit scoring to assess the underlying credit risk of new credit applicants and to predict the future credit risk of existing customers. Dr.Tjaart van der Walt outlines the different elements of credit scoring, explains the risk management benefits of this approach and explores how it can be ... click here for more details.

Is it possible to develop a blueprint for managing interrelated risks across a complex financial institution? Jeff DeRose offers his thoughts on the expansion of risk exposure, the importance of risk appetite and risk tolerance strategies, the impact of risk budgeting and the benefits of building an enterprise risk road map. ... click here for more details.

Why is it dangerous to rely on Value-at-Risk exclusively to measure the risk in a portfolio? Should financial institutions supplement this risk measure with position limits and stress testing, or should they adopt more coherent risk measures to replace VaR completely? Jay Lindgren and Chris Gibbons investigate.