ERM Frameworks and Responses to risk [83]

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Bullet points include: Ultimately portfolio allocation involves trading-off risk against return Most clearly articulated in fund management community But applies elsewhere too Qualitative or quantitative approaches And mixtures, such as reverse optimisation, and/or refinements, e.g. robust, Black-Litterman, see e.g. Kemp (2009) Most important quantitative tool is portfolio optimisation Particularly common is (constrained) quadratic optimisation, aka mean-variance Theoretically justified if investors have quadratic utilities or if returns Gaussian (more generally, elliptic), so depend just on mean and variance

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