English

Implementing portfolio risk management and hedging in practice

Portfolio Management 2023-09-28 v1 Computational Finance Risk Management Trading and Market Microstructure

Abstract

In academic literature portfolio risk management and hedging are often versed in the language of stochastic control and Hamilton--Jacobi--Bellman~(HJB) equations in continuous time. In practice the continuous-time framework of stochastic control may be undesirable for various business reasons. In this work we present a straightforward approach for thinking of cross-asset portfolio risk management and hedging, providing some implementation details, while rarely venturing outside the convex optimisation setting of (approximate) quadratic programming~(QP). We pay particular attention to the correspondence between the economic concepts and their mathematical representations; the abstractions enabling us to handle multiple asset classes and risk models at once; the dimensional analysis of the resulting equations; and the assumptions inherent in our derivations. We demonstrate how to solve the resulting QPs with CVXOPT.

Keywords

Cite

@article{arxiv.2309.15767,
  title  = {Implementing portfolio risk management and hedging in practice},
  author = {Paul Alexander Bilokon},
  journal= {arXiv preprint arXiv:2309.15767},
  year   = {2023}
}
R2 v1 2026-06-28T12:33:56.235Z