Generalized marginal risk

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...

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Bibliographic Details
Published in:Journal of asset management 2011-06, Vol.12 (2), p.123-131
Main Authors: Keel, Simon, Ardia, David
Format: Article
Language:English
Subjects:
Approximation
Asset allocation
Decomposition
Economic models
Economic theory
Economics and Finance
Finance
Financial Services
Original Article
Portfolio management
Risk Management
Studies
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Summary: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.
ISSN:1470-8272
1479-179X
DOI:10.1057/jam.2010.30