Investment Risk and Uncertainty: Advanced Risk Awareness Techniques for the Intelligent Investor

CHAPTER 16

Axioma Risk Models

Bill Wynne; Melissa Brown, CFA; and Sebastian Ceria, PhD

Go to www.wiley.com/go/greiner to see video titled “Sebastian Ceria.”

This chapter identifies the advantages of Axioma risk models and exemplifies the use of the Axioma optimizer and risk models in portfolio construction. It is divided into the following sections: first, background information is conveyed including a description of the types of industry participants who employ risk models and the advantages they gain. Applications of the models and beliefs of practitioners that influence these applications are considered next. Then Axioma core organizational competencies and advantages of multiple risk models delivered daily are discussed; and finally, Axioma niche innovations of importance to specific clients are outlined, and we give an example highlighting the benefits of daily and multiple risk models.

BACKGROUND

Risk models are critical tools for investors, enabling them to fully understand the risks in their portfolios. Endowments, pension funds, foundations, family offices, consultants, risk management departments of investment banks, private wealth managers, traders, and investment managers face many complex decisions and reporting requirements. These industry practitioners employ risk models to both facilitate decisions and to simplify communication via standardized reports. In the past, risk models may have been viewed as tools mainly for quantitatively driven managers. More recently, ...