|
|
|
|
||||
|
||||
Managing Risks in a Risk-On/Risk-Off EnvironmentMarcos Lopez de PradoHess Energy Trading Company; Lawrence Berkeley National Laboratory; RCC at Harvard University September 23, 2012 Abstract: Every structure has natural frequencies. Minor shocks in these frequencies can bring down any structure, e.g. a bridge. An Investment Universe also has natural frequencies, characterized by its eigenvectors. A concentration of risks in the direction of any such eigenvector exposes a portfolio to the possibility of greater than expected losses (indeed, maximum risk for that portfolio size), even if that portfolio is below the risk limits. This is particularly dangerous in a risk-on/risk-off regime. Managing Risk is not only about limiting its amount, but also controlling how this amount is concentrated around the natural frequencies of the investment universe.
Number of Pages in PDF File: 50 Keywords: Risk Concentration, Eigenvectors, Eigen-risk decomposition, Risk-on/Risk-off JEL Classification: C01, C02, C61, D53, G11 working papers seriesDate posted: September 23, 2012 ; Last revised: April 22, 2013Suggested CitationContact Information
|
|
|||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo2 in 0.516 seconds
