ERM Frameworks and Responses to risk [73]

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Bullet points include: ‘Local’ adjustments, using e.g. Marginal VaR or Marginal Expected Shortfall (c.f. Euler capital allocation) Or ‘global’ responses including larger scale adjustments Difference may be primarily presentational: For current position to be optimal (which we would hope that it approximately is), it should maximise expected utility, hence exhibit ‘first order conditions’, i.e. have first partial derivatives of expected utility close to zero C.f. optimisation (especially constrained quadratic optimisation), quantitative asset allocation and reverse optimisation

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