Risk Return Optimization with Different Risk Aggregation Strategies

Submitted on 25th June 2015

Efficient risk-return portfolio management is a key success factor of bank management. New methods of integrated risk modelling play an important role in determining the degree of efficiency. Regulatory requirements (Basel II) demand to constraint risk from the point of view of regulatory and economic capital; bank portfolio management requires maximization of risk adjusted returns and efficient use of capital reserves under regulatory capital regimes. We set up optimization problems to illustrate different levels of integrated bank portfolio management. We constrain economic capital allocation using different risk aggregation teolodologies. We combine different methods of risk measurement (VaR and CVaR deviation) in portfolio optimization to identify risk return efficient target portfolio for bank management. We run optimization problems with Portfolio Safeguard package by American Optimal Decision (www.AOrDA.com).

Risk Training (Company)
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Ursula Theiler, Gaia Serraino, Stanislav Uryasev
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