Risk Budgeting Portfolio Problem Solving with Value-at-Risk

by Pearson, Neil D.

• ISBN13: 9780471405566
• ISBN10: 0471405566
• Edition: 1st
• Format: Hardcover
• Copyright: 2002-01-28
• Publisher: Wiley
• More Book Details

Summary

This book introduces VaR, extreme VaR, and stress-testing risk measurement techniques to major institutional investors, and shows them how they can implement formal risk budgeting to more efficiently manage their investment portfolios. Risk Budgeting is the most sophisticated and advanced read on the subject out there in the market.

Author Biography

NEIL D. PEARSON, PhD, is an Associate Professor of Finance at the University of Illinois at Urbana-Champaign. His research includes work on the development, estimation, and evaluation of models for pricing and hedging various derivatives and other financial instruments. Dr. Pearson has published papers in a number of academic journals, and is an Associate Editor of both the Journal of Financial Economics and the Journal of Financial and Quantitative Analysis. He has consulted for a number of U.S. and international banks, working on term structure models, the evaluation of derivatives pricing models, and issues that arise in the computation of Value-at-Risk measures. He received his PhD from the Massachusetts Institute of Technology.

Table of Contents

PART ONE: INTRODUCTION.

What are Value-at-Risk and Risk Budgeting?

Value-at-Risk of a Simple Equity Portfolio.

PART TWO: TECHNIQUES OF VALUE-AT-RISK AND STRESS TESTING.

The Delta-Normal Method.

Historical Simulation.

The Delta-Normal Method for a Fixed Income Portfolio.

Monte Carlo Simulation.

Using Factor Models to Compute the VaR of Equity Portfolios.

Using Principal Components to Compute the VaR of Fixed-Income Portfolios.

Stress Testing.

PART THREE: RISK DECOMPOSITION AND RISK BUDGETING.

Decomposing Risk.

A "Long-Short" Hedge Fund Manager.

Aggregating and Decomposing the Risks of Large Portfolios.

Risk Budgeting and the Choice of Active Managers.

PART FOUR: REFINEMENTS OF THE BASIC METHODS.

Delta-Gamma Approaches.

Variants of the Monte Carlo Approach.

Extreme Value Theory and VaR.

PAART FIVE: LIMITATIONS OF VALUE-AT-RISK.

VaR Is Only an Estimate.

Gaming the VaR.

Coherent Risk Measures.

PART SIX: CONCLUSION.

A Few Issues in Risk Budgeting.

References.

Index.