TITLE

RiskCAT: A Framework for Identifying Maximum Risk Thresholds. in Personal Portfolios

AUTHOR(S)
Grable, John E.
PUB. DATE
October 2008
SOURCE
Journal of Financial Planning;Oct2008, Vol. 21 Issue 10, p52
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
• This paper answers a key financial planning question: How can risk tolerance, risk capacity, and time horizon be combined to shape the development of diversified investment portfolios? A framework—RiskCAT—is presented that allows planners to determine a single risk profile score for clients. Risk profile scores indicate the maximum amount of systematic risk that is appropriate within a portfolio. • The RiskCAT framework extends the concept of multiplicative modeling as proposed by Cordell (2002). The challenge is that standardization does not yet exist within the profession to incorporate valid and reliable measures of risk tolerance, risk capacity, and time horizon. This paper offers prospective definitions for each input. • The risk tolerance input was developed from the many risk-tolerance instruments already available. A focus group of 22 experienced financial advisors created and standardized an index of risk capacity, which measures a person's financial ability to take on risk. • The investor's time horizon works as a mediating factor between risk tolerance and risk capacity. The same focus group provided a scaling system for a given investment time frame. • The multiplication of these three scores results in a beta score that measures the maximum exposure to systematic risk the client should take within the portfolio. • A value-at-risk method for validating risk profile scores is presented. The paper demonstrates that the application of RiskCAT profile scores to client situations results in a unique way to define systematic risk and place limits on risk exposures within client portfolios.
ACCESSION #
34839166

 

Related Articles

  • Enterprise Risk Management in Financial Services: From Vision to Value. Garcia, Virginia // Bank Accounting & Finance (08943958);Dec2004/Jan2005, Vol. 18 Issue 1, p3 

    The article discusses issues on the approach and implementation of enterprise risk management (ERM) among financial services institutions in the U.S. The fragmentation in the approach and implementation of risk management is discussed. The benefits of ERM to financial institutions are...

  • DECADE OF RISK. MCINDOE, BRUCE // Risk Management (00355593);Dec2009, Vol. 56 Issue 10, p22 

    The article discusses the development of risk management in the U.S. from 1999 to 2009. Risk management has evolved from focusing on financial risk management to an approach needed for organizational resilience. The change in perception about risk management was said to be prompted by the year...

  • Contemporary Financial Risk Management: The Role of Value at Risk (VAR) Models. Bhattacharyya, Malay // IIMB Management Review (Indian Institute of Management Bangalore;Sep2008, Vol. 20 Issue 3, p292 

    The measurement of risk is key to the management of risk. This note examines the various Value at Risk (VaR) models presently used to measure market risk and other kinds of risk. It concludes with a consideration of the need to pay attention to other categories of risk such as operational,...

  • A NEW APPROACH TO SUPPLY CHAIN RISK MANAGEMENT. Alicke, Knut; Zerlin, Benno; Wente, Insa Mareen // Supply Chain Europe;Jul2011, Vol. 20 Issue 4, p10 

    The article discusses the risk management in supply chains around the world. It tackles on the three step approach to proactive supply chain risk management including calculation of risk exposure and expected risk cost, definition of risk mitigation strategies and implementation and embedding in...

  • Risk Concentrations And ERM Programs. Swanson, Eric // Best's Review;Jun2007, Vol. 108 Issue 2, p45 

    The article provides information on the significance of risk concentration management on enterprise risk management programs in the U.S. The steps to consider in managing risk concentrations are provided including making the collection of updated risk concentration data mandatory at every...

  • A Financial Stability Board. Taylor, Charles R. // International Economy;Winter2009, Vol. 23 Issue 1, p50 

    The article focuses on the role of a Financial Stability Board (FSB) in managing the stability of any national financial sector. It notes that the idea of this single macro-prudential regulatory agency is to monitor and supervise large complex institutions that have been under the signs of...

  • Proactively Managing Risk. Hoeft, Steve; Davey, Melinda; Newsome, Dean // Defense AT&L;May/Jun2007, Vol. 36 Issue 3, p38 

    The article focuses on risks as threats to the organization. Risk management stands for developing and deploying a systematic corporate process for cost-effectively identifying, assessing, and addressing risks and causes of risk. There are many ways to become aware of risks and their causes....

  • What;s your appetite for risk? LENDRUM, SIMON // New Zealand Management;Jul2012, Vol. 59 Issue 6, p23 

    The author offers opinions on risk management in business. It is argued that the proper assessment of a company's ability to suffer short-term losses is essential for strategic planning. An investment strategy is urged in which executives should balance long-term rewards with the short-term risk...

  • Slipped risks. Warwick, Tom // Money Marketing;6/8/2006, p37 

    The article focuses on important things which must be taken into considerations when it comes to investment risk management. When it comes to risk, the problem lies on the interpretation of the clients. Independent financial advisers have a responsibility as professional advisers to understand...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics