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Risk Budgeting: Concept, Interpretation and …
217538 8/11/2005 Risk Budgeting: Concept, Interpretation and ApplicationsNorthfield Research Conference 2005 Eddie Qian, PhD, CFAS enior Portfolio Manager260 Franklin StreetBoston, MA 02110(617) 439-63271217538 8/11/2005 The Concept Risk contribution attribution of total risk to individual underlying components of a portfolio in percentage terms Examples Fixed income portfolio: sector risk, yield curve risk, .. Equity portfolio: systematic risk (risk indices/industries), specific risk, .. Asset allocation: TAA risk (stock/bond, cap rotation.)
217538 8/11/2005 20 Summary §Financial interpretation of risk contribution Loss contribution It applies to both standard deviation and VaR Cornish-Fisher approximation can be used to calculate VaR contribution
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