Financial and Non-financial Sources of Risk
Financial risks originate from financial markets and might arise from changes in share prices or interest rates. Non-financial risks emanate from outside the financial market environment and could be consequences of environmental or regulatory changes or an issue with customers…
Risk Budgeting
Risk budgeting focuses on the implementation of the risk tolerance decisions approved by the management at the strategic or governance level. The risk budget will quantify risk by specific metrics and allocate risk across the organization. Risk Dimensions A risk…
Risk Tolerance
At the governance level, the risk appetite of the organization must be established. Risk tolerance identifies the extent to which the organization is prepared to experience losses or opportunity costs in the effort to achieve organizational objectives. Risk Tolerance Determination The…
Risk Governance
Risk governance is the top-down process that directs and aligns risk management to support the goals of an enterprise. The governing body determines the goals and objectives of an organization and its risk appetite or tolerance. Risk tolerance helps in…
Risk Management Framework
Risk management is the process in which the level of risk to be taken is defined, and the levels of risk are measured with the objective of maximizing the company or portfolio value. Risk management is not about minimizing risk;…
Defining Risk Management
Risk is generally defined as exposure to uncertainty, such as uncertain environmental variables that cause variation in and unforeseeable outcomes. Risk can also be seen as the probability of loss or unfavorable outcome due to an action, inaction, or external…
Mutual Funds and Other Pooled Investments
Separately Managed Accounts SMAs, also referred to as managed accounts, wrap accounts, or individually managed accounts, are portfolios managed exclusively for the investor according to their investment, tax preferences, and requirements. The investor owns the underlying assets directly, unlike a…
Indices Representing Alternative Investments
As alternative investments have increased in popularity, it has become necessary to create alternative investment indices. The most widely followed classes of indices include commodities, real estate, and hedge funds. Commodity Indices These indices consist of futures contracts on one…
Fixed-income Indices
Construction The number of fixed-income securities is often larger than that of equity securities since fixed-income issuers often issue various fixed-income instruments with different characteristics. This expansive universe means that fixed-income indices may have to include thousands of different securities…
Types of Equity Indices
Types of equity indices include broad market, multi-market, sector, and style indices. Broad Market Indices: Typically represents more than 90% of a selected market. Common US broad market indices include the Wilshire 5000 or Russell 3000. Multi-market Indices: Usually comprise…