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Measuring and managing market, credit and Op risk [24]

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Bullet points include: Divide up total budget for portfolio risk between individual positions (or sub-portfolios) depending on Their contribution to total portfolio risk Their potential contribution to value-added (i.e. return / reward) Individual risk components may then be chosen / monitored on a continuing basis To ensure that they adhere to their budgeted allocation But otherwise some latitude in how sub-components positioned If losses/returns Gaussian then risk budgeting based on VaR very close to risk budgeting based on portfolio volatility and/or tracking error

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