Generalized Marginal Risk

Journal of Asset Management, Vol 12, pp.123-131, June 2011

13 Pages Posted: 11 Sep 2009 Last revised: 17 Nov 2017

See all articles by Simon Keel

Simon Keel

Aeris Capital AG

David Ardia

HEC Montreal - Department of Decision Sciences

Date Written: April 20, 2010

Abstract

An important aspect of portfolio risk management is the analysis of the overall risk with respect to the assets' allocations. Marginal risk is the traditional tool, however, this metric is only meaningful when a position is levered or when the proceeds from the sale of a position are put in the cash account. This paper proposes an extension of the traditional marginal risk approach as a means of overcoming this defficiency. The new concept addresses situations where the change in a position results in changes to other positions as well. An illustration is provided for synthetic and real-world portfolios.

Keywords: Marginal Risk, Component Risk, Generalized Marginal Risk, Value-at-Risk, Expected Shortfall, Elliptical Distribution

JEL Classification: C16, C44, G11

Suggested Citation

Keel, Simon and Ardia, David, Generalized Marginal Risk (April 20, 2010). Journal of Asset Management, Vol 12, pp.123-131, June 2011, Available at SSRN: https://ssrn.com/abstract=1471992

Simon Keel

Aeris Capital AG ( email )

Schützenstrasse 4
Pfäffikon SZ
Switzerland

David Ardia (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

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