11

163-181

19

 

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

2002

English

 

 

 

Basic

 

 

Value at risk, risk decomposition, implied views, hot spots, hedging, implied views analysis, mean-variance optimization, risk decomposition and portfolio optimization

 

This chapter uses the case of long-short hedge fund manager to demonstrate how a quantitative portfolio manager can use value at risk to measure, manage and optimize portfolio risk. The example portfolio includes 12 long and short positions in international stock index futures contracts, futures contracts on a benchmark government bon and currency forward contracts. Value at risk and risk decomposition calculations are provided. Further, the chapter discusses how these calculations help investment managers identify positions that represent the greatest risk and trades to hedge risks. The chapter also explains implied views analysis, the process of reverse engineering the portfolio by using current portfolio positions to infer views on expected returns and variances. Finally, the reading discusses the clear relationship between risk decomposition and portfolio optimization, in which optimal allocations have equal marginal return-to-marginal risk ratios.

 

11.1 MPT`S portfolio and parameter estimates
11.2 Value-at-risk
11.3 Is computing the value-at-risk enough?
11.4 Risk decompostion of the current portfolio
11.5 Risk decompostion and hedging
11.6 Implied views analysis
11.7 Risk decompsotion and portfolio optimization
11.8 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.