Risk Budgeting
First published:
ISBN: 9781906348885
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Theory of Risk Budgeting
Richard Horwitz, Erin Simpson, Terry Smith
Theory of Risk Budgeting
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
Risk budgeting is an integrated analytic framework with supporting management and reporting processes that provide a methodology to:
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understand risks and returns based on their fundamental sources;
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proactively manage diversification to construct robust, risk-efficient portfolios of investments; and
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constrain blow-up/tail risks.
Risk budgeting is based on the concept of allocating units of risk to specific investments, in contrast to the historical process of allocating assets. Traditionally, investors allocated 60% of their assets to equities and 40% to fixed income. Although the 60% of assets in equity represented approximately 90% to 95% of the risk of a typical portfolio (with the 40% in fixed income representing only 5% to 10% of the risk), within each of the equity and fixed-income buckets the percentage of risk allocated to each manager paralleled the related assets. However, with the ongoing growth in exposure to alternative investments (resulting from both a weak return outlook for traditional investments and the increasing acceptance of alternative investments by institutional investors) there are dramatic differences between asset allocations and risk
