Bridge over ocean
1 July 1997 Financial Analysts Journal Volume 53, Issue 4

A Multidimensional Framework for Risk Analysis

  1. Gifford Fong
  2. Oldrich A. Vasicek

The variety and complexity of portfolio holdings have given rise to the need for additional analyses for purposes of risk management. A framework for risk analysis includes three dimensions: sensitivity analysis, value at risk (VAR), and stress testing. This article describes each dimension and suggests a procedure for achieving a VAR measure. Once individual holdings are analyzed, attention can be directed to portfolio-level analyses and the types of output suitable for monitoring purposes. In combination, this framework can capture the important features of portfolio risk.

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