Risk Management

Risk contribution in portfolio management

We usually compute return attribution to know how much each asset contributes to portfolio return. This calculation is quite easy because return formula is linear and sub-additive. In that context, one can split the whole portfolio return in smaller parts corresponding to each asset. However, although risk measures have to be coherent (monotonous, sub-additive, homogeneous and translational invariant), their formulas are a more complex representation than a linear function. Then, how can we compute risk contribution?

Read more

T. Fuertes