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Risk Budgeting for Pension Plans
Jan 1, 2010
Jorge Mina provides the third in a series of articles, begun in the Winter 2003 issue, relating to the theme of risk attribution. In the previous articles, we have presented risk attribution schemes for equity and fixed income portfolios by first describing the relevant performance attribution schemes, and then defining the risk attribution schemes in parallel. Jorge extends this body of work by presenting methods for risk budgeting that rely on risk attribution as a key input. Ultimately, the goal is to build a framework wherein risk is budgeted as any scarce resource, and a portfolio manager can make active investments whose sizes are appropriate to the manager's confidence in his views.
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