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Risk Management

Risk management is the process of analyzing exposure to risk and deciding how to handle such exposure efficiently.

To analyze exposure to risk you often have to simulate business. You will calculate how your profits & losses could develop in general and what the best or worst performance could be.

A good site to look for up-to-date information is www.wilmott.com, I think.

Nassim Nicolas Taleb wrote some very interesting and valuable books on this subject:
Dynamic Hedging - Managing Vanilla and Exotic Options
Fooled by Randomness - The Hidden Role of Chance in Life and in the Markets
The Black Swan - The Impact of the Highly Improbable

Monte Carlo Simulations are used frequently to simulate business or market developments. One of the best books on this topic is Peter Jaeckels “Monte Carlo Methods in Fincance”.

A short introduction into the Value-at-risk approach I published here.

Some interesting algorithms on Options I present here.

If you want to measure the systematic risk of a portfolio you try to come up with a sensitivity of your portfolio to broad market movements: the beta. I offer a pragmatic approach for an outlier resistant beta here.

To establish a Monte Carlo simulation you will need random numbers. I present here some small Excel © VBA algorithms I found useful.

If you need to rebalance a portfolio at repeating time steps or when a specified tolerance has been reached, look here, please.

A nice exercise on data analysis which present ficticious FX, Real Estate, Equity and Fixed Income data you can find here.

Some years ago I had some fun when I (re-)designed an Excel © application for portfolio valuation and for some risk measures.

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