Though it might sound a bit tedious, but it isn’t that tough after all.
Basically there are not many comprehensive and understandable frameworks for capital management. Modern portfolio theory from Markowitz is probably one of the best known ones but A. Meucci has developed a comprehensive and mathematical based framework.
Learn this “10 Secrets of Advanced Risk and Portfolio Management” developed by A. Meucci and grow your business in the most effective way possible:
Explore Your Market Data and Investigate the Invariance
You need to dig out the market data available and extract the invariants. Invariants is that certain pattern that has a tendency to repeat itself in the same manner independently over time.
To know your invariants, break it down in the following steps:
- Recognize the risk factors that are present in the market data.
- Churn out the invariants from the risk factors.
Guesstimate Your Figures
After you have successfully extracted your invariants, estimate your figures by creating a distribution according to the realizations observed in the history as well as keep a note of the additional information that is present in the present scenario.
Realize Your Current Position
In the end all we are interested in,is where do you stand from the viewpoint of investment and what is your position. After you have done your calculations right, project the Invariants present in your investment sphere. This will establish your position if you have appropriately determined the circulation of the risk factors.
Estimate Your Pricing
After you have successfully computed your risk factors present in your investment sphere, it is now time to extract the securities present in the invariants. Although the worth of a security is calculated by these 2 factors, which are:
- Risk factors present in the scenario.
- Terms and conditions that are known to you currently.
Pricing Function aids you in acquiring your securities present in your investment sphere over your risk factors.