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A Post-crisis Perspective on Diversification for Risk Management

Auteurs :
Noël Amenc

Professor of finance, director of development at EDHEC Business School, and head of EDHEC-Risk Institute.

Felix Goltz
Head of applied research at EDHEC-Risk Institute and director of research and development at EDHEC-Risk Indices & Benchmarks.

Stoyan Stoyanov
Professor of finance at EDHEC Business School and programme director of the executive MSc in risk and investment management for Asia.

Since the global financial crisis of 2008, improving risk management practices management of extreme risks, in particular—has been a hot topic.

Publication EDHEC

Publication EDHEC

The postmodern quantitative techniques suggested as extensions of mean-variance analysis, however, exploit diversification as a general method. Although diversification is most effective in extracting risk premia over reasonably long investment horizons and is a key component of sound risk management, it is ill-suited for loss control in severe market downturns. Hedging and insurance are better suited for loss control over short horizons. In particular, dynamic asset allocation techniques deal efficiently with general loss constraints because they preserve access to the upside. Diversification is still very useful in these strategies, as the performance of well-diversified building blocks helps finance the cost of insurance strategies.
Type :
Publication EDHEC
Dates :
Créé le 6 mai 2011
Complément d'informations :
For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ]

The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.

Finance


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