Risk Scenarios for Systematic Investment Products

At a glance

Project leader: Prof. Dr. Peter Schwendner

Project team: Jann Stoz

Project start date: 01-01-2014

Further information: http://pd.zhaw.ch/publikation/upload/205482.pdf

Short description

The performance of actively and systematically managed investment products does not only depend on the asset allocation, the long-term risk premia and tactical overlays. In stress scenarios, the path-dependent mechanics for risk management and rebalancing are influencing the recovery prospects of these products as well.
An example is the drawdown of risk parity funds in May and June 2013 due to the correlated correction in bonds and equities, and the subsequent deleveraging of some of these funds. In historical data, such situations are quite rare, therefore neither a pure "historical simulation" nor a parametric Monte Carlo simulation would help. This raises the question how such correlated and path-dependent risk scenarios can be set up. Working together with institutional investors, we construct such risk scenarios and evaluate them for specific products.