RT Journal Article
SR Electronic
T1 Risk Management for Hedge Funds with Position Information
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 127
OP 134
DO 10.3905/jpm.2007.698042
VO 34
IS 1
A1 Philippe Jorion
YR 2007
UL https://pm-research.com/content/34/1/127.abstract
AB Risk management is a challenge for hedge funds because traditional risk measurement methods based on return data are unreliable for dynamic trading strategies. Yet managers can still use value at risk (VaR) methods to measure and control the market risk of hedge funds. Two key VaR features enable this: VaR 1) is based on current position information, and 2) focuses on a lower quantile of the distribution of losses or some other risk metric. For rapidly changing positions, VaR should be measured at frequent intervals, as would be the case for bank's proprietary trading portfolios. An example demonstrates the usefulness of dynamic risk measures for a hypothetical hedge fund with short option positions. Imposition of daily ex ante VaR limits using position information can be successful in controlling realized risk.TOPICS: Risk management, VAR and use of alternative risk measures of trading risk, volatility measures