- CFA Exams
- 2024 Level II
- Topic 9. Portfolio Management
- Learning Module 42. Measuring and Managing Market Risk
- Subject 3. Using Constraints in Market Risk Management
Subject 3. Using Constraints in Market Risk Management PDF Download
Constraints are widely used in risk management. Risk measurements and constraints in and of themselves are not restrictive or unrestrictive; it is the limits placed on the measures that drive action.
Risk budgeting is the allocation of the total risk appetite across sub-portfolios.
Position limits are limits on the market value of any given investment.
A scenario limit is a limit on the estimated loss for a given scenario, which, if exceeded, would require corrective action in the portfolio.
A stop-loss limit requires a reduction in the size of a portfolio, or its complete liquidation, when a loss of a particular size occurs in a specified period.
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