Portfolio Risk, VaR Budgeting, and Performance Evaluation
Free GARP FRM Part II lesson in Risk Management and Investment Management. 22 min read, ~3,231 words.
Diversified portfolio VaR uses the covariance matrix; undiversified VaR sums individual VaRs and overstates risk unless correlations equal 1. Marginal VaR, the change in portfolio VaR per dollar added to position. Component VaR = position weight times marginal VaR; sums to total VaR. Risk budgeting allocates a total VaR limit...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
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