Tag: risk

Value at Risk in Portfolio Management

Value at Risk in Portfolio Management

Value at Risk measures the likelihood of losses to an asset or portfolio, over a defined period for a given confidence interval, due to market risk. Such a narrow definition of risk is further limited to the VaR focus on downside risk and potential losses in the short-term; indeed, VaR can be computed over a quarter or a year, but it is usually computed over a day, a week or a few weeks.

Factor models based on linear regression

Factor models based on linear regression

Factor models are applied by portfolio managers to analyze the potential returns on a portfolio of risky assets, to choose the optimal allocation of their funds to different assets and to measure portfolio risk. The theory of linear regression-based factor models applies to most portfolios of risky assets, excluding options portfolios but including alternative investments such as real estate, hedge funds, and volatility, as well as traditional assets such as commodities, stocks, and bonds.

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