What is Risk Budgeting?
Risk Budgeting The process of allocating portfolio risk across assets or strategies according to desired risk objectives, as opposed to traditional capital allocation.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Risk Budgeting” Used in Practice?
Risk budgeting enables asset managers to control portfolio risk by assigning limits to various sources of volatility and tracking error.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Risk Budgeting?
The process of allocating portfolio risk across assets or strategies according to desired risk objectives, as opposed to traditional capital allocation.
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