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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26654
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| Title: | RISK MANAGEMENT WITH BENCHMARKING |
| Authors: | Basak, Suleyman
Shapiro, Alex
Tepla, Lucie |
| Keywords: | Benchmarking
Investments
Shortfall Risk
Tracking error
Value-at-Risk |
| Issue Date: | Dec-2003 |
| Series/Report no.: | SC-AM-03-16 |
| Abstract: | Portfolio theory must address the fact that, in reality, portfolio
managers are evaluated relative to a benchmark, and therefore adopt risk
management practices to account for the benchmark performance. We
capture this risk management consideration by allowing a pre-specified
shortfall from a target benchmark-linked return, consistent with growing
interest in such practice. In a dynamic setting, we demonstrate how a
risk-averse portfolio manager optimally under- or over-performs a target
benchmark under different economic conditions, depending on his attitude
towards risk and choice of the benchmark. The analysis therefore
illustrates how investors can achieve their desired gain/loss
characteristics for funds under management through an appropriate
combined choice of the benchmark and money manager. We consider a
variety of extensions, and also highlight the ability of our setting to
shed some light on documented return patterns across segments of the
money management industry. |
| URI: | http://hdl.handle.net/2451/26654 |
| Appears in Collections: | Asset Management
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