Risk budgeting determines how much risk to allocate to each asset class from "summary" of Institutional Investment Management by Frank J. Fabozzi
Risk budgeting is a crucial aspect of institutional investment management as it involves determining the amount of risk that should be allocated to each asset class within a portfolio. This process is essential in achieving the desired risk-return profile for the overall investment strategy. By allocating risk in a systematic manner, investors can ensure that their portfolio is well-diversified and aligned with their investment objectives. The concept of risk budgeting recognizes that different asset classes have varying levels of risk and return potential. Therefore, it is important to carefully assess the risk characteristics of each asset class and allocate risk accordingly. This involves considering factors such as historical performance, ...
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