13

205-219

15

 

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

2002

English

 

 

 

Basic

 

 

Risk budgeting, risk decomposition, active management, strategic benchmark, tracking error, risk contribution, marginal risk, asset allocation

 

This chapter demonstrates how the concepts of value-at-risk and risk budgeting can be applied to the problem of managing active risk at the total fund level. The chapter explores both the analysis of the existing manager roster and the determination of the optimal manager roster, and demonstrates both by stepping through the steps of risk decomposition and budgeting for a 7-asset class example. The quantitative analysis is kept simple, assuming return normal distributions throughout.

 

13.1 The existing asset allocation and managing roster
13.2 The strategic benchmark
13.3 Risk decomposition of the existing manager roster
13.4 Risk decomposition of the existing asset class allocations
13.5 Optimal manager roster and asset allocation
13.6 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.