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.
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Acknowledgements
The authors thank the Editor, one anonymous referee, Guido Bolliger, Kris Boudt, Michel Dubois, Winfried G. Hallerbach, Lennart F. Hoogerheide, Dusan Isakov, Attilio Meucci, Brian Peterson, Julien Straubhaar, and their colleagues at aeris CAPITAL AG for numerous helpful suggestions for improvement of the article. The views expressed in this article are the sole responsibility of the authors and do not necessarily reflect those of aeris CAPITAL AG or any of its affiliates. Any remaining errors or shortcomings are the authors’ responsibility.
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Keel, S., Ardia, D. Generalized marginal risk. J Asset Manag 12, 123–131 (2011). https://doi.org/10.1057/jam.2010.30
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DOI: https://doi.org/10.1057/jam.2010.30