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Generalized marginal risk

Author

Listed:
  • Simon Keel

    (aeris CAPITAL AG)

  • David Ardia

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 article proposes an extension of the traditional marginal risk approach as a means of overcoming this deficiency. The new concept addresses situations where the change in a position results in changes to other positions as well. An illustration is provided for a real-world portfolio.

Suggested Citation

  • Simon Keel & David Ardia, 2011. "Generalized marginal risk," Journal of Asset Management, Palgrave Macmillan, vol. 12(2), pages 123-131, June.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:2:d:10.1057_jam.2010.30
    DOI: 10.1057/jam.2010.30
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    References listed on IDEAS

    as
    1. Winfried G. Hallerbach, 1999. "Decomposing Portfolio Value-at-Risk: A General Analysis," Tinbergen Institute Discussion Papers 99-034/2, Tinbergen Institute.
    2. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
    3. Zinoviy Landsman & Emiliano Valdez, 2003. "Tail Conditional Expectations for Elliptical Distributions," North American Actuarial Journal, Taylor & Francis Journals, vol. 7(4), pages 55-71.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    marginal risk; component risk; expected shortfall; elliptical distribution;
    All these keywords.

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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