Trading Risk

Informationen zum Autor 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. Before joining Cheyne, he created risk control programs at two of the world?s leading hedge funds, Tudor Investments and SAC Capital, where he was eventually promoted to the title of Chief Investment Strategist. Earlier in his career, Mr. Grant led risk management efforts for the Chicago Mercantile Exchange and Société Générale. He is also a member of the Board of Directors of the Managed Futures Association (MFA), and is a founding member of MFA?s Hedge Fund Advisory Committee?the industry?s leading trade relations organization. He is a principal author of MFA?s Sound Practices for Hedge Fund Managers (2000). Mr. Grant holds a Bachelor of Science in Economics and Mathematics from the University of Wisconsin, an MA in Economics from Columbia University, and an MBA from the University of Chicago Graduate School of Business. Klappentext A revolutionary system for fearless trading without excessive risk "Trading Risk provides a useful and intuitive roadmap of the risk management process, as written by an individual with unique experience and insight into this topic. It is an engaging read and covers complex subject matter in a straightforward and often-entertaining manner." - Stanley Shopkorn, Shopkorn Associates "Ken Grant's eminently readable new book on risk management is a rare blend of theory and practical applications. It is a great starting point for the novice and deep enough for the experienced practitioner." - Mark R. Graham, Managing Partner, Blue Elite Fund, Ltd. "This book describes a very practical approach to risk management in a lucid and entertaining manner. Anyone concerned with the topic of risk management ought to find it of interest." - Susan Estes, Managing Director, Countrywide Securities "Thoughtful, unique, detailed, actually enjoyable, and comprehensible reading for what is normally a boring and confusing topic." - Dwight Anderson, President, Osprei Management, LP "A must-read for risk managers of companies of all sizes who want to preserve capital and take practical advantage of trends in the marketplace. This is a clearly written, funny, and entertaining guide to a very serious topic that affects all corporations. This very complex topic was simplified and made easy to understand by a true expert in the art of risk management." - Phupinder Gill, Managing Director & President Chicago Mercantile Exchange Zusammenfassung Revolutionary techniques that traders can implement to improve profits and avoid losses 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. Inhaltsverzeichnis Preface ix Acknowledgments xiv Chapter 1 The Risk Management Investment 1 Chapter 2 Setting Performance Objectives 19 Optimal Target Return 21 Nominal Target Return 24 Stop-Out Level 26 The Beach 32 Chapter 3 Understanding the Profit/Loss Patterns over Time 37 And Now to Statistics, but First a Word (or More) about Time Series Construction 39 Time Units 40 Time Spans 43 Graphical Representation of Daily P/L 48 Histogram of P/L Observations 51 Statistics 53 A Tribute to Sir Isaac Newton 53 Average P/L 56 Standard Deviation 57 Sharpe Ratio 65 Median P/L 68 Percentage of Winning Days 68 Performance Ratio, Average P/L, Winning Days versus Losing Days 69 Drawdown 70 Correlations 73 Putting It All Together 79 ...

Texte du rabat

A revolutionary system for fearless trading without excessive risk "Trading Risk provides a useful and intuitive roadmap of the risk management process, as written by an individual with unique experience and insight into this topic. It is an engaging read and covers complex subject matter in a straightforward and often-entertaining manner."

• Stanley Shopkorn, Shopkorn Associates

"Ken Grant's eminently readable new book on risk management is a rare blend of theory and practical applications. It is a great starting point for the novice and deep enough for the experienced practitioner."

• Mark R. Graham, Managing Partner, Blue Elite Fund, Ltd.

"This book describes a very practical approach to risk management in a lucid and entertaining manner. Anyone concerned with the topic of risk management ought to find it of interest."

• Susan Estes, Managing Director, Countrywide Securities

"Thoughtful, unique, detailed, actually enjoyable, and comprehensible reading for what is normally a boring and confusing topic."

• Dwight Anderson, President, Osprei Management, LP

"A must-read for risk managers of companies of all sizes who want to preserve capital and take practical advantage of trends in the marketplace. This is a clearly written, funny, and entertaining guide to a very serious topic that affects all corporations. This very complex topic was simplified and made easy to understand by a true expert in the art of risk management."

• Phupinder Gill, Managing Director & President
  Chicago Mercantile Exchange

Résumé
Revolutionary techniques that traders can implement to improve profits and avoid losses 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.

Contenu

Preface ix

Acknowledgments xiv

Chapter 1 The Risk Management Investment 1

Chapter 2 Setting Performance Objectives 19

Optimal Target Return 21

Nominal Target Return 24

Stop-Out Level 26

The Beach 32

Chapter 3 Understanding the Profit/Loss Patterns over Time 37

And Now to Statistics, but First a Word (or More) about Time Series Construction 39

Time Units 40

Time Spans 43

Graphical Representation of Daily P/L 48

Histogram of P/L Observations 51

Statistics 53

A Tribute to Sir Isaac Newton 53

Average P/L 56

Standard Deviation 57

Sharpe Ratio 65

Median P/L 68

Percentage of Winning Days 68

Performance Ratio, Average P/L, Winning Days versus Losing Days 69

Drawdown 70

Correlations 73

Putting It All Together 79

Chapter 4 The Risk Components of an Individual Portfolio 81

Historical Volatility 84

Options Implied Volatility 86

Correlation 90

Value at Risk (VaR) 91

Justification for VaR Calculations 92

Types of VaR Calculations 94

Testing VaR Accuracy 98

Setting VaR Parameters 99

Use of VaR Calculation in Portfolio Management 102

Scenario Analysis 104

Technical Analysis 106

Chapter 5 Setting Appropriate Exposure Levels (Rule 1) 109

Determining the Appropriate Ranges of Exposure 110

Method 1: Inverted Sharpe Ratio 111

Method 2: Managing Volatility as a Percentage of Trading Capital 114

Drawdowns and Netting Risk 129

Asymmetric Payoff Function 130

Chapter 6 Adjusting Portfolio Exposure (Rule 2) 133

Size of Individual Positions 134

Directional Bias 135

Position Level Volatility 141

Time Horizon 142

Diversification 144

Leverage 146

Optionality 148

Nonlinear Pricing Dynamics 149

Relationship between Strike Price and Underlying Price (Moneyness) 149

Implied Volatility 150

Asymmetric Payoff Functions 150

Leverage Characteristics 151

Summary 154

Chapter 7 The Risk Components of an Individual Trade 155

Your Transaction Performance 156

Key Components of a Transactions-Level Database 157

Defining a Transaction 158

Position Snapshot Statistics 160

Core Transactions-Level Statistics 161

Trade Level P/L 162

Holding Period 162

Average P/L 163

P/L per Dollar Invested (Weighted Average P/L) 164

Average Holding P…