Portable Alpha & Beta: Renaissance of Risk Management or Science Fiction?

Presentation By: Roger Urwin & Gerard Roelofs, Watson Wyatt
Presented: March 22, 2006

This presentation covers a number of implementation issues involved with portable alpha stratgies (sources of alpha and vehicles for beta exposure).  Covers the question of whether “pure” alpha or “pure” beta exists.

The authors propose a five-step methodology for implementing portable alpha programs:

  1. Determine accessible alpha sources & alpha universe
  2. Determine total risk budget
  3. Market risk (beta) budget, including exposure to “exotic” beta
  4. Active risk (alpha) budget
  5. Implementation: choice of instrument, capital allocation, risk allocation

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