Questions tagged [risk-management]
The identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
442 questions
0 votes
1 answer
98 views
Historical scenarios for VaR/ES of CDS indexes spread
Historical series of CDS indexes spreads rebase twice per year. These events introduce two "technical" scenarios (even 10 bps, not marginal) which could affect historical market risk ...
1 vote
1 answer
92 views
Discrepancy in Ulcer Index calculation with the Riskfolio-Lib library
I am using the Riskfolio-Lib Python library to calculate the Ulcer Index. When I run the function, the values I get are on the order of hundredths (for example, 0.0X). My issue is that, based on other ...
- 111
0 votes
2 answers
268 views
Volatility Targeting: Dynamic Approaches
In volatility targeting annualised rolling volatility is estimated using a lookback window or an exponentially weighted moving average . The recursive EWMA formula for variance is: $$\sigma_t^2 = (1 - ...
- 21
2 votes
0 answers
100 views
Calculating Kelly Bet Sizes for Non Gaussian Return Distributions
Kelly position sizes are generally estimated using $\mu / \sigma^2$. This estimation is only accurate for a gaussian return distribution. The exact formula is of course the argument at maximum of the ...
- 21
5 votes
1 answer
236 views
How are factors determined on a basis to fully describe/decompose risk/variance?
In The Prediction of Systematic and Specific Risk in Common Stocks by Rosenberg & McKibben (1973), the authors mention in section III. "A Stochastic Model of the Parameters": but the (...
- 2,886
1 vote
0 answers
63 views
What is the formula for value-at-risk (VaR) when the asset value follows an exponential distribution, and how can it be derived? [closed]
For example, say an asset value in 10 days follows an exponential distribution with mean $ W_{0} $. What would the formula for the value-at-risk for confidence c and reference level $ W_{0} $ for the ...
- 21
0 votes
0 answers
69 views
Scaling an Options Trade: How Much Risk is Too Much?
I'm considering an Iron Butterfly trade (+105P, -130P, -130C, +155C), which has a net credit. Based on max loss calculations at expiration, if held to expiration, I ...
- 143
0 votes
1 answer
68 views
Intuition behind the first-order approximation of loss of a portfolio given finite observable risk factors
I am trying to get an intuition behind the first-order approximation, $L_{t+1}^\Delta$ of the loss of a portfolio, $L_{t+1}$ from time $t$ to $t+1$ defined as $$L_{t+1}=-[V_{t+1}-V_t]$$ $$L_{t+1}^\...
- 111
0 votes
0 answers
47 views
GARCH parameters generating simulations that have a lot higher standard deviation's than the historical standard deviation
Below is code using the rugarch package for the daily returns of the NDX, XAU and XAGm. The issue is that when I simulate the data 200 steps ahead for 50k sims, calculate the standard deviation of the ...
- 119
0 votes
0 answers
62 views
Historical stress scenarios for portfolio of short worst-of-basket structured products and short puts?
I'm looking for historical scenarios for stress testing considering a portfolio of SMI Index based instruments, particularly short structured products (predominantly autcallables and non-callable ...
- 675
2 votes
1 answer
108 views
Taking into account liquidity risks when calculating volatility
I am looking at bonds where some are more liquid than others, in that some bonds have a much higher volume than others. If I am holding a bond X with more liquidity than bond Y, but X and Y receive ...
1 vote
0 answers
54 views
Sefton and Scowcroft paper on understanding marginal contribution to active risk
I am looking to obtain a link or citation to the paper 'understanding marginal contribution to active risk' by Sefton and Scowcroft. I believe it was document compiled by ubs research and MSCI and ...
- 403
1 vote
0 answers
153 views
Volatility Surface Stress Testing - PCA
I’m currently working on creating historical and hypothetical stress tests, but I’m facing challenges in implementing a method to realistically stress volatility surfaces. In terms of data, I have ...
- 11
1 vote
0 answers
112 views
The evaluation of a portfolio using quadratic utility or CRRA?
Given a (selection of) multi-asset fund I am finding the expected utility using the historical returns distribution for a range of risk aversion parameters, in order to yield some form of rating, and ...
- 11
1 vote
0 answers
86 views
Volatility of S&P 500 based portfolios too low
I am trying to calculate the volatility of five portfolios consisting of S&P 500 stocks. The portfolios consist roughly each of 20% of the S&P 500 members between 2015-2022, rebalanced monthly ...
- 11