Tid: 7 juni 2005 kl 1615-1700 (OBS! dagen!)

Plats : Seminarierummet 3721 (OBS! lokalen!), Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Johan Holtsjö.

Titel: Optimal Active Risk Budgeting Model: Applied to Sjunde AP-fonden: Theory and Implementation. (Examensarbete)

Sammanfattning: The board of Sjunde AP-fonden (AP7) has determined a strategic asset allocation, a relevant benchmark and a limit for active risk. The next step is to allocate the risk budget across the various asset classes and between different asset managers. This has historically been done with a pragmatic approach, only making certain that the total active risk is expected to stay within the risk limit. A natural preference is of course to determine your management structure, not only by budgeting the risk, but also by considering the expected return by maximizing the total expected active return relative to the benchmark subject to a tracking error limit.

This is where the Optimal Active Risk Budgeting Model comes in to place. The model introduces a four-step procedure to optimally budget the fund's total active risk (tracking error) among its asset classes and asset managers within the asset classes. In other words, the model determines the optimal tracking error for each asset class and asset manager, given a total fund tracking error constraint. The steps are:

  1. Generate Asset Class Efficient Frontiers.
  2. Fit a cubic function to the Efficient Frontiers.
  3. Creating an Active Risk Constraint for Each Asset Class.
  4. Select the Optimal Manager Allocation.
This thesis explains the various steps in the model, gives a brief review of the theory behind the model, how the model has been tailored to a framework that suits AP7, and how to implement the model into a userfriendly program.

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