Risk budgeting and diversification based on optimised uncorrelated factors
Standard risk budgeting and risk parity use marginal risk contributions to attribute risk to the different instruments in a portfolio. Attilio Meucci, Alberto Santangelo and Romain Deguest introduce an alternative, natural, more general risk decomposition based on ‘minimum-torsion bets’, which uncovers the effective number of uncorrelated bets in a portfolio
In recent years, finance practitioners and academics have witnessed a surge in interest in two different, yet related, areas: risk budgeting, namely the fair attribution of the total risk of an enterprise to its different business lines (see a review and references in Tasche (2008)); and risk parity, namely investment in strategies that contribute equally to the total risk of the portfolio (see a
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk management
One-factor rates models sit behind most XVA calculations
Risk Benchmarking: Dealers coalesce around calibration depth, but runtimes and lookbacks vary sharply
Could a prediction market bet get you fired by your bank?
At least half of US systemic banks limit personal prediction trades, but mention markets still a concern
Dealers still split on XVA desks’ funding remit
Risk Benchmarking: Global dealers use XVA desks to manage swaps funding needs, but most treasuries retain some control
How enterprise risk rose to the top of the bank
Previously a support function, ERM is naturally positioned to identify strategic risks for the board
Can prediction markets pass the institutional sniff test?
Regulated firms need credible event determination methodologies and cross-product margining to enable use, say experts
Most dealers run central XVA desks, but remits vary
Risk Benchmarking: Many banks struggle to track XVA costs and share of derivatives compute
EU banks in India cut contingency costs after clearing deal
Esma MoU with two Indian regulators lifts threat to direct clearing for BNP, SocGen and Deutsche
Big banks look to XVA desks to crush counterparty exposures
Risk Benchmarking: Two-thirds of global dealers run routine optimisation, compared with just 13% of smaller players
