Risk Budgeting: Portfolio Problem Solving with Value-at-Risk
Risk BudgetingTo successfully manage an investment portfolio, institutional investors and fund managers understand they must take risks to generate superior investment returns. The more complicated question is, "How much risk should they take?" In Risk Budgeting: Portfolio Problem Solving with Value-at-Risk, expert Neil Pearson introduces the concept of risk budgeting and describes the tools and techniques that underlie it, namely Value-at-Risk (VaR) and risk decomposition.Risk Budgeting presents sophisticated ideas but avoids the use of high-level mathematics so you can easily understand the techniques and immediately begin to implement a formal risk budgeting plan. You'll be able to more efficiently manage an investment portfolio that consists of everything from equities and bonds to commodities and derivatives.Focusing strictly on the techniques for accomplishing risk budgeting, this comprehensive guide will give institutional investors, fund managers, and portfolio managers a complete working knowledge of VaR-its use in measuring and identifying the risks of investment portfolios as well as its use in risk budgeting. Insightful case studies and useful charts illustrating examples of VaR, extreme VaR, and stress testing risk measurement techniques will help any professional look down the financial road and make proper adjustments, minimizing potential risk.Step by step, Risk Budgeting takes you through the concept of risk budgeting as an investment process and VaR as a risk measurement technique:* Presenting the concepts of VaR in an equity portfolio and introducing the ways it can be used in risk decomposition and budgeting* Analyzing the approaches to computing VaR and creating scenarios for stress testing* Using VaR in risk budgeting* Recognizing the limitations of VaRFinding and dealing with the risk of any type of portfolio has become increasingly difficult within the new financial environment. Improve your risk management skills with Risk Budgeting, and learn how VaR can be used as an integral part of your own risk management framework.