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Allocating and forecasting changes in risk

Journal of Risk, Vol. 25, No. 3, 2023

24 Pages Posted: 9 Feb 2023

See all articles by Daniel Gaigall

Daniel Gaigall

Aachen University of Applied Sciences - FH Aachen; Gottfried Wilhelm Leibniz Universität Hannover

Date Written: September 5, 2022

Abstract

We consider time-dependent portfolios and discuss the allocation of changes in the risk of a portfolio to changes in the portfolio’s components. For this purpose we adopt established allocation principles. We also use our approach to obtain forecasts for changes in the risk of the portfolio’s components. To put the approach into practice we present an implementation based on the output of a simulation. Allocation is illustrated with an example portfolio in the context of Solvency II. The quality of the forecasts is investigated with an empirical study.

Keywords: portfolio risk, allocation, forecast, covariance principle, conditional expectation principle

Suggested Citation

Gaigall, Daniel, Allocating and forecasting changes in risk (September 5, 2022). Journal of Risk, Vol. 25, No. 3, 2023, Available at SSRN: https://ssrn.com/abstract=4351658

Daniel Gaigall (Contact Author)

Aachen University of Applied Sciences - FH Aachen

Gottfried Wilhelm Leibniz Universität Hannover

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