Risk Budgeting: Portfolio Problem Solving with Value-at-Risk - Hardcover

Pearson, Neil D.

Hardcover

ISBN 10: 0471405566 ISBN 13: 9780471405566

Publisher: Wiley, 2002

Synopsis

Covers the hottest topic in investment for multitrillion pension market and institutional investors
Institutional investors and fund managers understand they must take risks to generate superior investment returns, but the question is how much. Enter the concept of risk budgeting, using quantitative risks measurements, including VaR, to solve the problem. VaR, or value at risk, is a concept first introduced by bank dealers to establish parameters for their market short-term risk exposure. This book introduces VaR, extreme VaR, and stress-testing risk measurement techniques to major institutional investors, and shows them how they can implement formal risk budgeting to more efficiently manage their investment portfolios. Risk Budgeting is the most sophisticated and advanced read on the subject out there in the market.

About this title

About the Author

NEIL D. PEARSON, PhD, is an Associate Professor of Finance at the University of Illinois at Urbana-Champaign. His research includes work on the development, estimation, and evaluation of models for pricing and hedging various derivatives and other financial instruments. Dr. Pearson has published papers in a number of academic journals, and is an Associate Editor of both the Journal of Financial Economics and the Journal of Financial and Quantitative Analysis. He has consulted for a number of U.S. and international banks, working on term structure models, the evaluation of derivatives pricing models, and issues that arise in the computation of Value-at-Risk measures. He received his PhD from the Massachusetts Institute of Technology.

From the Back Cover

Praise for Risk budgeting

"Professor Pearson has raised the bar for books on market risk. Moving beyond descriptions of VaR calculation and stress testing, he provides careful discussions of both the refinements and the limits of the VaR technique. Even more importantly, this book provides structure to the heretofore vague idea of 'risk budgeting.' "
-Charles Smithson, Managing Partner, Rutter Associates

"Pearson has written an excellent resource for risk management practitioners who actually need to compute and use VaR. Numerous concrete examples make a broad range of VaR techniques accessible to the people who actually need to use them. The book also provides tangible applications of risk budgeting, a term often used but rarely made relevant. Pearson has put meat on the bones for plan sponsors who want to actually employ risk budgeting techniques."
-Bennett Golub, Co-head of Risk Management and Analytics,
Founding Partner, BlackRock

"An excellent book. This text provides a bridge from the theoretical to the practical, and clears the fog between the buzzwords of risk budgeting and the realities of a useful new portfolio management tool. Pearson's writing is well balanced between needed academic foundation and the practicalities of managing portfolios."
-Rob Roy, Director, Cash and Investments, Adventist Health System

"I just wish I could summarize this book as ably as Professor Pearson summarizes the voluminous literature on Value-at-Risk. Unfortunately, I suspect no further compression is possible. To reduce the risk of reading rubbish, your best bet is to read this book."
-Dr. Peter Carr, Senior Consultant, Risk Capital Management

From the Inside Flap

Risk Budgeting

To successfully manage an investment portfolio, institutional investors and fund managers understand they must take risks to generate superior investment returns. The more complicated question is, "How much risk should they take?" In Risk Budgeting: Portfolio Problem Solving with Value-at-Risk, expert Neil Pearson introduces the concept of risk budgeting and describes the tools and techniques that underlie it, namely Value-at-Risk (VaR) and risk decomposition.

Risk Budgeting presents sophisticated ideas but avoids the use of high-level mathematics so you can easily understand the techniques and immediately begin to implement a formal risk budgeting plan. You'll be able to more efficiently manage an investment portfolio that consists of everything from equities and bonds to commodities and derivatives.

Focusing strictly on the techniques for accomplishing risk budgeting, this comprehensive guide will give institutional investors, fund managers, and portfolio managers a complete working knowledge of VaR-its use in measuring and identifying the risks of investment portfolios as well as its use in risk budgeting. Insightful case studies and useful charts illustrating examples of VaR, extreme VaR, and stress testing risk measurement techniques will help any professional look down the financial road and make proper adjustments, minimizing potential risk.

Step by step, Risk Budgeting takes you through the concept of risk budgeting as an investment process and VaR as a risk measurement technique:
* Presenting the concepts of VaR in an equity portfolio and introducing the ways it can be used in risk decomposition and budgeting
* Analyzing the approaches to computing VaR and creating scenarios for stress testing
* Using VaR in risk budgeting
* Recognizing the limitations of VaR

Finding and dealing with the risk of any type of portfolio has become increasingly difficult within the new financial environment. Improve your risk management skills with Risk Budgeting, and learn how VaR can be used as an integral part of your own risk management framework.

Edition details

• Publisher: Wiley
• Publication date: 2002
• Language: English
• ISBN 10: 0471405566
• ISBN 13: 9780471405566
• Binding: Hardcover
• Edition number: 1
• Number of pages: 256