Search
Browse
Create
Log in
Sign up
Log in
Sign up
Upgrade to remove ads
Only $2.99/month
Reading 7: Risk Measurement and Risk Attribution
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Key Concepts:
Terms in this set (66)
Risk
Exposure to uncertainty.
Financial Risk
Risks related to events in external financial markets.
Market Risk
Risk related to market movements, e.g., unexpected changes in share prices, interest rates, currency exchange rates, and commodity prices.
Credit Risk
The risk of loss caused by a counterparty or debtor's failure to make a promised payment.
Counterparty Risk
The risk of loss caused by a counterparty's failure to make a payment.
Liquidity Risk
The risk that results from the inability to trade an asset quickly without a significant concession in price.
Operational Risk
The risk of loss from failure in a company's systems or procedures or from external events such as acts of God, terrorist action, etc.
Non-Financial Risk
Includes operational risks, model risks, and settlement risks.
Model Risk
The risk that a model is incorrect or misapplied.
Settlement Risk
Risk of a breakdown in the settlement of a trade.
Regulatory Risk
Risk of changes in regulations that adversely affect valuation.
Legal/Contract Risk
Risk that arises from contract terms that are not clearly specified.
Tax Risk
Risk of unexpected changes in tax rates or rulings.
Sovereign/Political Risk
Risk related to potential government actions.
Accounting Risk
Risks arising from uncertainty about how a transaction should be recorded and the potential for accounting rules to change.
Ex Ante Risk
Risk looking to the future.
Ex Post Risk
Risk in reference to a past record.
Stand-Alone Risk
Risk independent of the performance of other assets.
Portfolio Risk
The risk of a collection of assets.
Idiosyncratic Risk
Risk that is firm or security specific.
Systematic Risk
Risk originating from broad financial market conditions and the macroeconomy; also called non-diversifiable risk.
Absolute Risk
Risk without comparison with a benchmark.
Relative Risk
Risk relative to some reference point.
Surplus Risk
Risk related to the value of surplus (vales of assets minus the value of liabilities).
Active Risk
The variability of a manager's deviations from the benchmark.
Symmetric Risk
Risk related to both upside and downside.
Asymmetric Risk
Risk focusing on the part of variability that reflects losses rather than total variability.
Frequency Distribution
A tabular display of data summarized into a relatively small number of intervals.
Histogram
A bar chart of data that have been grouped into a frequency distribution.
Arithmetic Mean Return
The arithmetic mean of a set of holding period rates of returns.
Median
The "middlemost" observation; i.e., in a set of observations that has been ranked from highest to lowest, the median will lie in the middle.
Positive Skewness
The condition of being skewed towards larger values; skewed to the right.
Negative skewness
The condition of being skewed towards smaller values; skewed to the left.
Time-Series Analysis
Analysis of where the returns for an asset were examined over time.
Cross-Sectional Analysis
Analysis over a group as of a given time.
Tail Risk
The possibility of extreme losses.
Downside Risk
The potential for loss.
Quartiles
Values that divide a distribution into four equal parts.
Quintiles
Values that divide a distribution into five equal parts.
Deciles
Values that divide a distribution ranked smallest to largest into 10 equal parts.
Percentiles
Values that divide a distribution into 100 equal parts.
Variance
The expected value or the mean of squared deviations from the mean.
Mean Absolute Deviation
A measure of dispersion calculated as the mean of the absolute values of deviations from the mean.
Tracking Risk
The standard deviation of the differences between a portfolio's returns and its benchmark's returns. Also called tracking error and active risk.
Covariance
A measure of how any two assets move together over time.
Correlation
A measure of linear relationship calculated as covariance divided by the product of the individual asset standard deviations.
Standard Deviation
The positive square root of variance.
Tracking Risk
The standard deviation of the differences between a portfolio's returns and its benchmark's returns.
Beta
A measure of systematic risk that is based on the covariance of an asset's or portfolio's return with the return of the overall market; a measure of the sensitivity of a given investment or portfolio to movements in the overall market.
Semi-Variance
An asymmetric risk mean that is similar to the variance except that only deviations below the mean are measured.
Target Semi-Variance
The same as the semi-variance, except that a specified target return is used instead of the mean return.
Semi-Standard Deviation
The square root of the semi-variance.
Target Semi-Standard Deviation
A measure of downside risk that focuses on deviations below a target value.
Drawdown Measures
Measures that capture various aspects of peak-to-trough declines.
Individual Drawdown
A decline in value (represented by a series of negative returns only) following a peak fund valuation.
Average Drawdown
The average of a specified number of the largest drawdowns over a given period.
Maximum Drawdown
The largest peak to trough loss within a period.
Drawdown Duration
The time it takes to experience and then recover from the maximum drawdown; time from peak to trough to peak.
Value at Risk
An estimate of the loss that we expect to be exceeded with a given level of probability over a specified time period.
Tail Value at Risk
Equal to VaR plus the expected loss in excess of VaR, given that such excess loss occurs.
Contribution to VaR
A measure of the relative volatility of the different segments compared to the volatility of the total fund.
Analytical VaR
VaR is relatively easy to calculate, requiring only an expected return and standard deviation of returns.
Disadvantage: its reliance on the assumption of a normal distribution of returns. Would be inappropriate for portfolio trading options
Historical VaR
Does make the assumption that historical returns are an appropriate representation of the likelihood of future returns.
Advantage: does not require a normal distribution of returns
Disadvantage: extremely unlikely that the specific set of circumstances that occurred during a given historical period will occur again with exactly the same effect.
Monte Carlo VaR
Might be appropriate for a portfolio that displays a return distribution significantly different from the normal distribution. Uses a random number generator to estimate potential return outcomes, making it easier to incorporate the effect of options and other derivatives into the analysis.
Disadvantage: as the number of individual investments increases, the complexity of the calculations requires significant computer resources.
Stree Testing
Process by which we can estimate the expected impact on a portfolio of changes in different parameters, such as changes in equity markets, commodity prices, or interest rates.
Risk Attribution
The analysis of the sources of risk.
YOU MIGHT ALSO LIKE...
study set#19 measure the risk of different types o…
39 terms
Topic 7 Risk
15 terms
Chapter 11 - Risk and Diversification
13 terms
Finance 8.1
28 terms
OTHER SETS BY THIS CREATOR
Reading 12: Investment Performance Presentation
7 terms
Investment Manager Selection: An Introdu…
26 terms
Formulas
60 terms
Reading 9: Investment Performance Apprai…
35 terms