Position Model with Ranking for Risk and Profit

Position Model with Ranking for Risk and Profit Management J. A. Dobelman, dobelman@stat. rice. edu Objectives Rice University – Department of Statistics Scenarios/Questions Results Scenario Analysis (Answers to Important Questions). Examples: Manage/trade a HEDGED position (best-ish) Identify a preferred strategy in a trading program. Models for Risk and Profit Management Position Model (PM). is the “price” of a position (money-ness), a normalized position P/L. Normalized by lot- and contract size. Time-varying/path dependent Market Model (MM). “Off-the-Shelf” diffusion model, with or without jump measures. Opportunities/ risks for linear or non-linear instruments are greater with jump models. Business Model (BM). Enterprise with trading LOB; a collection of units, accounts, horizons, policies and strategies. The trading account Simulation Approach Future Work For hedged strategy, prove return = ; MV stochastic order for accounts of trading books; Wider PM variety (swaps, futures, exotics); Options on positions (MM); TFM and dynamic physical system analogy; Multiple trading units (BM); international subsidiaries and numeraire risk. References Thompson, J. R. , Williams, E. E. , Findlay, M. C. III, Models for Investors in Real World Market, . New York: John Wiley & Sons (2002). A. Mueller and D. Stoyan, Comparison Methods for Stochastic Models & Risks, J. Wiley & Sons (2002). Dobelman, J. A. "Options Portfolio, ” Research Report, Statistics Department, Rice University, April, 2000.