Risk & Portfolio Management
5 terms
Margin
Risk & Portfolio Management
₹
Borrowed funds or collateral used to take a position larger than the cash available.
Margin Requirement = Position Value x Required Percentage; Leverage = Position Value / Margin Posted
Margin Call
Risk & Portfolio Management
₹
A demand from a broker for additional funds when losses reduce collateral below the required level.
Shortfall = Required Margin - Available Collateral, payable immediately
Maximum Drawdown
Risk & Portfolio Management
%
The largest peak-to-trough decline a portfolio or strategy has experienced over a measured period.
Maximum Drawdown = the largest value of (Peak - Trough) / Peak observed across the period
Mean Reversion
Risk & Portfolio Management
qualitative
The tendency of a series to return toward its long-run average after moving far away from it.
Test: extreme deviations from a long-run mean are followed on average by moves back toward that mean
Modern Portfolio Theory
Risk & Portfolio Management
qualitative
The framework holding that assets should be judged by their contribution to a portfolio's risk and return, not in isolation.
Portfolio Return = Sum of Weighted Returns; Portfolio Variance = Sum over all pairs of (Weight i x Weight j x Covariance of i and j)