{"categories":["Risk Management"],"contentHtml":"<p>FE-535 opens by separating the risk-management process from a single risk number: identify exposures, measure them, evaluate the result, and decide how the portfolio should be constructed. The notes distinguish market, credit, liquidity, operational, and model risk because each fails in a different way.</p>\n<p>Portfolio construction starts with the joint behavior of returns. Expected return, variance, and covariance determine how a position contributes to the whole portfolio. Diversification reduces idiosyncratic risk only when the exposures are not perfectly aligned; it cannot remove a common market shock.</p>\n<p>The class frames risk measurement as a decision tool. A statistic is useful only if its assumptions, horizon, liquidity, and tail behavior match the decision it is meant to support.</p>","contentMarkdown":"FE-535 opens by separating the risk-management process from a single risk number: identify exposures, measure them, evaluate the result, and decide how the portfolio should be constructed. The notes distinguish market, credit, liquidity, operational, and model risk because each fails in a different way.\n\nPortfolio construction starts with the joint behavior of returns. Expected return, variance, and covariance determine how a position contributes to the whole portfolio. Diversification reduces idiosyncratic risk only when the exposures are not perfectly aligned; it cannot remove a common market shock.\n\nThe class frames risk measurement as a decision tool. A statistic is useful only if its assumptions, horizon, liquidity, and tail behavior match the decision it is meant to support.","dataUrl":"https://sharifhsn.dev/api/posts/risk-measurement-and-portfolio-construction.json","date":"2024-09-05","datePublished":"2024-09-05","description":"FE-535 opens by separating the risk-management process from a single risk number: identify exposures, measure them, evaluate the result, and decide how the portfolio should be cons…","site":"https://sharifhsn.dev","slug":"risk-measurement-and-portfolio-construction","source":"FE-535 | Risk Management","sourceUrl":null,"tags":["Risk Management","Portfolio Construction","Market Risk"],"title":"Risk Measurement and Portfolio Construction","url":"https://sharifhsn.dev/blog/risk-measurement-and-portfolio-construction/","version":"1","wordCount":116}