A practical and authoritative introduction to the concept of risk unit allocation as an alternative and more effective decision-making process for long-term investors.



*Make an informed decision about how to implement and execute a "risk unit allocation" investment policy



*Analysis of techniques to assess how risk might impact long-term investment returns



*Introduces methods to allocate assets based on the "risk unit" exposures - in individual asset classes and on a portfolio basis, to meet long-term pension obligations and investment return objectives



*Investigates ways to use VAR to accommodate a long-term investment horizon



*Contributions from leading experts drawn from consultancies; large institutional investors; pension plans; investment banks and academia



Table of Contents

Introduction

Leslie Rahl

Part 1: OVERVIEW

1 Risk Budgeting: The Next Step of the Risk Management

Journey - The Veteran's Prospective by Leslie Rahl

2 Crisis and Risk Management by Myron Scholes

PART 2: UNDERSTANDING RISK BUDGETING

3 Risk Budgeting: Managing Active Risk at the Total Fund Level by

Kurt Winkelmann

4 The Dangers of Historical Hedge Fund Data by Andrew B. Weisman and Jerome Abernathy

5 Value-at-Risk for Asset Managers by Christopher L. Culp, Ron Mensink and Andrea M.P. Neves

6 Risk Budgeting fore Pension Funds and Investment Managers using VAR by Michelle McCarthy

7 Risk Budgeting for Active Investment Managers by Robert Litterman, Jacques Longerstaey, Jacob Rosengarten and Kurt Winkelmann

8 Risk Obsession: Does it Lead to Risk Aversion? by Amy B. Hirsch

9 Market Neutral and Hedged Strategies by Joseph G. Nicholas

10 The Infrastructure Challenge: Empowering the Stakeholder through the Successful Deployment of Technology and Data by Gabriel Bousbib

PART 3: PRACTITIONERS' THOUGHTS: CASE STUDIES IN RISK BUDGETING

11 Risk Budgeting in a Pension Fund by Leo de Bever, Wayne Kozun and Barbara Zvan

12 Risk Budgeting with Conditional Risk Tolerance by Michael de Marco and Todd E. Petzel

13 VAR for Fund Managers by Stephen Rees



About the Author

Leslie Rahl is president of Capital Market Risk Advisors, Inc, a risk management consultancy firm. Prior to founding her consultancy firm in 1991, Leslie spent 19 years at Citibank, nine of which were as head of Citibank's Derivatives Group in North America.

Ms Rahl was named among the "Top 50 Women in Finance" by Euromoney in 1997 and was profiled in both the fifth and 10th anniversary issues of Risk magazine. She has been published numerous times.



She was a director of the International Swaps and Derivatives Association (ISDA) for 5 years and is currently a member of the Board of the International Association of Financial Engineers and the Fischer Black Memorial Foundation and a member of the Board of Advisors for the financial engineering programme at the Sloan School. Ms Rahl received her undergraduate degree in computer science from the Massachusetts Institute of Technology and her MBA from the Sloan School of Management.