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
Date Written: April 20, 2010
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: Suggested Citation