Risk Governance and Risk Appetite
Value-at-Risk: A Dissenting Opinion
Holistic Risk Budgeting
Theory of Risk Budgeting
Risk Budgeting for Active Investment Managers
Pension Funds and Incentive Compensation: A Based on the Ontario Teachers’ Experience
Risk Budgeting for Banks
Risk Budgeting in the Evolution of Insurance Company Risk Management
Hedge-Fund Risk Budgeting
Private Equity Risk Budgeting
The classical theorists resemble Euclidean geometers in a non-Euclidian world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidian geometry.
John Maynard Keynes, The General Theory (1936)
HOW TO BLOW UP YOUR HEDGE FUND
The partners of Long-Term Capital Management included Nobel Prize winners and PhDs in finance, economics, maths and physics. Having poached Wall Street’s savviest traders and combined them with what no less a figure than William Sharpe declared to be “probably the best academic finance department in the world” (Siconolfi and Raghavan 1998), LTCM set about deploying the most sophisticated financial models ever devised. Key among these models was value-at-risk (VaR).
The VaR methodology was integral to LTCM’s investment strategy. LTCM viewed portfolio construction as an optimisation problem centred on maximising returns while minimising variance (which in VaR terms is the same thing as minimising “risk”). The end