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Abstract
Menchero and Davis present a flexible and general framework for attributing portfolio risk to the same decision variables used to attribute portfolio return. For each return source, the authors decompose the risk contribution into a product of exposure, volatility, and correlation. Their method is a generalization of the marginal contribution to risk approach. In addition to providing a highly intuitive risk attribution, the authors’ approach also allows drilldown capability into the volatility and the correlation, thus providing even greater insight into the sources of portfolio risk.
TOPICS: Risk management, portfolio theory, factor-based models
- © 2011 Pageant Media Ltd
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