Author: Kenneth L.Grant
Kenneth L.Grant is Cheyne’s Global Risk Manager, and is the Managing Member for Cheyne Capital, LLC, the firm’s U.S. arm. Mr. Grant is a pioneer in the field of hedge fund risk management and capital allocation.
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No trader, professional or individual, can afford not to have a solid risk management program integrated into his or her trading system. But finding a precise mathematical model to replace subjective decision-making processes is a challenge. Traditionally, risk management has focused solely on loss avoidance, but in Trading Risk, hedge fund risk manager Kenneth Grant presents some-thing completely new—how to manage a portfolio to minimize risk and increase profits by putting more capital at risk. Trading Risk details a risk management program that can help both money managers and individual traders evaluate which elements in a portfolio are working efficiently and which aren’t. By illustrating an extremely simple set of statistical and arithmetic tools this book can help readers enhance their performance in many financial markets.
Table of Contents
CHAPTER 1: The Risk Management Investment.
CHAPTER 2: Setting Performance Objectives.
Optimal Target Return.
Nominal Target Return.
CHAPTER 3: Understanding the Profit/Loss Patterns over Time.
Graphical Representation of Daily P/L.
Histogram of P/L Observations.
A Tribute to Sir Isaac Newton.
Percentage of Winning Days.
Performance Ratio, Average P/L, Winning Days versus Losing Days.
Putting It All Together.
CHAPTER 4: The Risk Components of an Individual Portfolio.
Options Implied Volatility.
Value at Risk (VaR).
Justification for VaR Calculations.
Types of VaR Calculations.
Testing VaR Accuracy.
Setting VaR Parameters.
Use of VaR Calculation in Portfolio Management.
CHAPTER 5: Setting Appropriate Exposure Levels (Rule 1).
Determining the Appropriate Ranges of Exposure.
Method 1: Inverted Sharpe Ratio.
Method 2: Managing Volatility as a Percentage of Trading Capital.
Drawdowns and Netting Risk.
Asymmetric Payoff Function.
CHAPTER 6: Adjusting Portfolio Exposure (Rule 2).
Size of Individual Positions.
Position Level Volatility.
Nonlinear Pricing Dynamics.
Relationship between Strike Price and Underlying Price (Moneyness).
Asymmetric Payoff Functions.