Questions tagged [risk-management]
The identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
442 questions
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Historical scenarios for VaR/ES of CDS indexes spread
Historical series of CDS indexes spreads rebase twice per year. These events introduce two "technical" scenarios (even 10 bps, not marginal) which could affect historical market risk ...
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Volatility Targeting: Dynamic Approaches
In volatility targeting annualised rolling volatility is estimated using a lookback window or an exponentially weighted moving average .
The recursive EWMA formula for variance is:
$$\sigma_t^2 = (1 - ...
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How are factors determined on a basis to fully describe/decompose risk/variance?
In The Prediction of Systematic and Specific Risk in Common Stocks by Rosenberg & McKibben (1973), the authors mention in section III. "A Stochastic Model of the Parameters":
but the (...
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Scaling an Options Trade: How Much Risk is Too Much?
I'm considering an Iron Butterfly trade (+105P, -130P, -130C, +155C), which has a net credit. Based on max loss calculations at expiration, if held to expiration, I ...
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GARCH parameters generating simulations that have a lot higher standard deviation's than the historical standard deviation
Below is code using the rugarch package for the daily returns of the NDX, XAU and XAGm. The issue is that when I simulate the data 200 steps ahead for 50k sims, calculate the standard deviation of the ...
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Taking into account liquidity risks when calculating volatility
I am looking at bonds where some are more liquid than others, in that some bonds have a much higher volume than others. If I am holding a bond X with more liquidity than bond Y, but X and Y receive ...
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Volatility Surface Stress Testing - PCA
I’m currently working on creating historical and hypothetical stress tests, but I’m facing challenges in implementing a method to realistically stress volatility surfaces.
In terms of data, I have ...
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Volatility of S&P 500 based portfolios too low
I am trying to calculate the volatility of five portfolios consisting of S&P 500 stocks.
The portfolios consist roughly each of 20% of the S&P 500 members between 2015-2022, rebalanced monthly ...
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not understanding ATR calculation
i don't quiet understand the result of the quantity of shares based on the ATR calculation
(800(capital) * 3%(risk) / (2 * 0.44(ATR)) = 27, would the result be in shares?, because based on my risk per ...
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Liquidity Stress Test of Investment fund - Liquidation tracking error
It is my first message on this board, I have hesitated a few days before bothering you with my struggles, but I've seen a lot of very knowledgeable and patient people here willing to help out.
I ...
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How to adjust an assets position to target volatility in a long-short portfolio?
I have a portfolio of weights $\mathbf{x}$ where some positions in $\mathbf{x}$ are short s.t. $\Sigma_i x_i=0$ (dollar neutral).
The standard way to estimate the volatility contribution per asset is ...
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Value At Risk Modelling for electricity market with negative prices
I'm a bit at loss after trying to find papers regarding tail risk for electricity markets. There doesn't appear to be a whole lot of literature (or perhaps I haven't managed to find it) regarding ...
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Minimizing variance of market neutral portfolio given factor covariance matrix and stock return predictions
If I am given a return prediction and factor exposures for say 50 stocks, as well as the factor covariance matrix, what is the process to determine the weightings of the minimum variance portfolio, ...
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Active risk management of private assets
It seems incredibly difficult to not only come up with a list of options for active risk of private assets (Private Equity, Private Credit, Infrastructure, Real Estate, etc.) but also get senior ...
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Methods to estimate Options volume
I need to build a Liquidity Risk report at my intern job. There, I consider an MDTV90 (Median Daily Traded Value for 90 days, a measure of liquidity) for each asset we trade to find how many days we ...
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Pricing and Risk Management of Exotic Options with a Volatility Surface [duplicate]
Bit of a newbie question; but I see this pop up from time to time.
If we have a volatility surface (e.g. for the S&P500) built from market options what more can we do with it, but price other ...
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High-frequency risk management methodologies
In a high-frequency environment, such as a proprietary trading firm or market making firm, the primary goal of the risk management team would be to limit potential losses, but how is that done in this ...
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Roll down for floating rate notes
is it correct to say that floating rate notes (FRNs) have no roll-down for a time horizon as it is interest risk free?
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FX Risk Reversal - RHS/LHS - Strike adjustments
I was wondering why ppl use the wordings being „rhs/LHS“ right hand side / left hand side when having an risk reversal for example Long EUR Call / USD Put and Short EUR Put / USD Call. Do they refer ...
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the difference between CS01 and RS 1%
Please tell me the difference between CS01 and RST 1% (Relative spreads tightening by 1%) and how these two are used to monitor the credit flow traded product's exposures. Why would you use the spread ...
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MonteCarlo Value At Risk for futures portfolio
I wanted to ask, suppose I have a portfolio of futures of gasoline and other oil products eg ULSD (Ultra Low Sulphur Diesel), WTI (West Texas Intermediate) for different months. I want to compute the ...
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Why do companies trade options?
Companies buy options to reduce the variability in future cash flows.
Institutional investors invest in portfolios to maximize return for a fixed amount of risk. If an investor owns stock in company A ...
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What is Leverage?
What would you consider leverage? I know this may sound like a basic question but I have spoken with several industry professionals with a significant amount of experience and all of them have a ...
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Does tail risk disappear in the long horizon in any rolling over strategy with shorter frequency?
Say I am investing to gain weekly yields ${y_{i}}$ for over a year, gaining the overall yield:
$\prod_{n=1}^{52} (1+y_i) -1$
The most dominant term in the above product is the sum of all yields, which ...
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Core deposits forecasting in stress testing
I’m designing a stress test at a commercial bank. What are the advantages/disadvantages of forecasting core NMD deposits vs. total deposit balances?
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