Post by Sapphire Capital on Oct 24, 2008 18:59:52 GMT 4
Allocation of Portfolio Overlay Hedges to Business Units
Mohsen Mazaheri
affiliation not provided to SSRN
September 25, 2008
Abstract:
Financial institutions may engage in portfolio overlay hedging practices meant to offset portfolio exposures across business units or strategies. Most often, portfolio overlay hedging is in context of tail vs. "normal" market risk with the objective of hedging of tail loss. This paper outlines a method for allocation of portfolio overlay hedge p&l to business units. Since portfolio overlay is focused on hedging of tail risk, the correct measure of risk to use is CVaR (or Expected Shortfall). The difficulties of using this measure are discussed. The allocation when VaR is used is discussed in detail.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1287831_code1054906.pdf?abstractid=1273782&mirid=1
Mohsen Mazaheri
affiliation not provided to SSRN
September 25, 2008
Abstract:
Financial institutions may engage in portfolio overlay hedging practices meant to offset portfolio exposures across business units or strategies. Most often, portfolio overlay hedging is in context of tail vs. "normal" market risk with the objective of hedging of tail loss. This paper outlines a method for allocation of portfolio overlay hedge p&l to business units. Since portfolio overlay is focused on hedging of tail risk, the correct measure of risk to use is CVaR (or Expected Shortfall). The difficulties of using this measure are discussed. The allocation when VaR is used is discussed in detail.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1287831_code1054906.pdf?abstractid=1273782&mirid=1