Assessing Value at Risk for Quantitative Investment Strategies

The Situation

A major mutual fund family asked NERA to provide a risk assessment of several alternative investment strategies that they were considering offering to their clients.

NERA's Role

NERA used the Monte Carlo method and historical simulation techniques to measure Value at Risk (VaR) and other downside risk measures for the strategies individually and combined in various portfolios. The risks of these strategies were evaluated over a diverse set of market conditions and stress scenarios. NERA also reviewed the risks posed by leverage in the strategies.

The Result

NERA identified ways for the fund family to successfully manage the liquidity, funding, and execution risks if the investment strategies were implemented.