Hands-On Design Patterns and Best Practices with Julia

Introducing a risk management use case

In a risk management use case, we want to estimate the volatility of portfolio returns using a process called Monte Carlo simulation. The concept is pretty simple. First, we develop a risk model based on historical data. Second, we use the model to predict the future in 10,000 ways. Finally, we look at the distribution of security returns in the portfolio and gauge how much the portfolio gains or losses in each of those scenarios.

Portfolios are often measured against benchmarks. For example, a stock portfolio may be benchmarked against the S&P 500 Index. The reason is that portfolio managers are typically rewarded for earning alpha, a term for describing the excess return that is over and above the ...