Risk Decomposition for Fund Managers

R/Finance, Chicago, 2015

7 Pages Posted: 25 May 2015 Last revised: 1 Jun 2015

Date Written: May 31, 2015

Abstract

This paper describes a methodology extension for decomposing non-linear portfolio risk by fund manager which we refer to as "Manager Component Value-at-Risk." The approach is well suited to funds holding any asset class or instrument type including derivatives. This decomposition approach is additive and fully captures the correlations between instrument returns and thus is well suited for decomposing risk by manager. We provide an example from a representative CTA portfolio that demonstrates superiority of the decomposition approach over other common practices for risk decomposition. The core methodology is implemented in R and made available to readers.

Keywords: Component VaR, Non-linear Risk, Investment Management, R

JEL Classification: G32, C02

Suggested Citation

Dixon, Matthew Francis, Risk Decomposition for Fund Managers (May 31, 2015). R/Finance, Chicago, 2015. Available at SSRN: https://ssrn.com/abstract=2610188

Matthew Francis Dixon (Contact Author)

Illinois Institute of Technology ( email )

Department of Math
W 32nd St., E1 room 208, 10 S Wabash Ave, Chicago,
Chicago, IL 60616
United States

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