Dynamically Adjusting Risk Limits to a Reference Index

Dynamically Adjusting Risk Limits to a Reference Index

• The model proposes a method to adjust Risk limits to a reference index.
• More specifically, the adjustment consists in adapting an equity exposure limit considering the volatility of a stock versus a reference index / benchmark. The higher the stock volatility versus the index, the lower the limit (and the lower the exposure to the stock allowed).
• The model proposes an alternative to standard static limits, usually expressed in steps.