10

153-162

10

 

John Wiley & Sons, Inc. (Visit publisher website)

2002

English

 

 

 

Basic

 

 

Risk decomposition, risk contribution, Euler`s law, risk decomposition with historical simulation and Monte Carlo simulation, value at risk for longer horizons, portfolio management uses of VaR

 

This chapter provides a summary of the mathematics of risk decomposition, showing how how to calculate the risk contribution of each position in a portfolio and the important role of covariance in that calculation. The chapter also discusses how risk decomposition can be done with historical simulation and Monte Carlo simulation approaches to VaR without prohibitive computation. Finally, issues associated with using VaR in investment management are considered, including the use of longer horizons and the use of manager`s forecasts in setting expected returns.

 

10.1 Risk decompostion
10.2 Risk decompostion for historical and Monte Carlo simulation
10.3 Expected returns: whose model?
10.4 Notes

 

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*** From the publisher ***
Covers the hottest topic in investment for multitrillion pension market and institutional investors.
Institutional investors and fund managers understand they must take risks to generate superior investment returns, but the question is how much. Enter the concept of risk budgeting, using quantitative risks measurements, including VaR, to solve the problem. VaR, or value at risk, is a concept first introduced by bank dealers to establish parameters for their market short-term risk exposure. This book introduces VaR, extreme VaR, and stress-testing risk measurement techniques to major institutional investors, and shows them how they can implement formal risk budgeting to more efficiently manage their investment portfolios. Risk Budgeting is the most sophisticated and advanced read on the subject out there in the market.