What is the risk fee in the budget?

The risk fee is considered by the bidder when quoting, and the expenses that should be borne by the insured when various risks occur in the process of engineering construction, which are expressed or implied in the bidding documents. risk budgeting refers to four processes: allocating the tolerable potential losses to all aspects of the investment process, monitoring whether these aspects exceed their limits, taking corrective measures if necessary, and evaluating the risk-adjusted returns.

technical indicators

1, tracking error

The reason for tracking error is that the target portfolio can define its investment target (benchmark) in advance, and once the investment benchmark is determined, the investment manager will track the benchmark portfolio (in the case of single-factor evaluation model, it should be the market index).

due to the scale of funds, the ability of investment managers and other reasons, in the actual investment process, the actual investment portfolio can not be compleTEly consistent with the investment benchmark, so the so-called te will be produced. TE is essentially the same as volatility, but it represents the volatility of relative returns relative to market index.

2. Relative income

Relative return is also called positive return Alpha (abbreviated as A), excess return (ER) or realized return. Managers are usually evaluated by their ability to increase Alpha. Excess return represents the part of the total return that exceeds the risk-free return or benchmark return.

3. Information ratio

In portfolio management, it is always expected to increase the value increment (Alpha) of the portfolio and reduce the residual risk as much as possible. When the residual risk is low, it can be safely considered that the value of Alpaha is stable. When the residual risk is high, the value increment α of the portfolio will be more uncertain, that is, the confidence of the significance of α value will be reduced.

in order to improve the confidence of performance measurement, the ratio of value increment α to residual risk should be maximized, which is called information ratio.

Extended data:

Relationship with VaR

Logically, VaR and VaR have no special relationship. Risk budget needs to measure portfolio risk, and VaR is an alternative and a natural alternative, because:

(1) VaR is a measurement tool of downside risk, so it is very useful in the case of asymmetric portfolio income distribution;

(2) When the return is normally distributed, the value at risk is equivalent to an expected estimate of the standard deviation of the portfolio. Of course, the process of risk budgeting can be realized by using any of many risk indicators.

For example, the prospective estimation of combined standard deviation can be used, and Alzner et al. (1997; 1999). In fact, a widely recommended method is to combine the value-at-risk measurement index with the "stress test".

however, in practice, the value at risk is closely related to the risk budget. Because risk budgeting involves the quantification, integration and decomposition of risks, a set of well-known measurement indicators of portfolio risk integration is the premise of the application and acceptance of risk budgeting.

in this sense, risk budget is a natural derivative of risk value. Compared with the popularity and wide acceptance of VaR, today's risk budget may not be heard or understood by many people.

However, VaR still has some well-known limitations. Perhaps in the process of risk budgeting, other risk measurement tools will eventually replace the value at risk.

Baidu Encyclopedia-Risk Budget