525 Risk budget/budgeting: active management strategies, 446-451 active risk level, 171-185 active risk spectrum, 192-210 covariance matrix estimation, 248 data analysis, 176-179 development of, 24, 26-27, 171-173 equity risk factor models, 334-395 example of, 256-257 global tactical asset allocation fGTAA), 476 hedge funds and, 512 implied confidence levels, 185-190 implied returns, 179-184 independent valuation, 285-296 investment policy, 185-190 optimal active risk budget development, 171-191 optimal allocation, 14 optimality and, 173 and portfolio, 429 purpose of, 255-256, 277-278 return attribution, 297-333 risk management, total fund level, 211-223 risk monitoring, 221-222, 249-284 risk/return analysis, 13 security selection, 221 separate investment accounts, 410 uncorrelated assets, 166 views, 185-190 Risk capital, 253-254, 257, 262-264, 277 Risk contributions, 156, 162 Risk culture, 260-261 Risk decomposition, see Portfolio risk, decomposition of analysis, 269 covariance matrix estimation, 226 equity risk factor models, 383, 391 GTAA portfolio, 475-476 implications of, 34-35, 147, 164, 166,172,199, 224, 254, 263-264, 391-392 return attribution and, 298-299 risk monitoring program, 221-222 uncorrelated assets, 161 Risk diversification standards, 277 Risk estimation, 392-395 Risk exposure, 351 Risk footprint, 215 Risk-free assets, 37, 49 Risk-free rate, 39, 48, 58, 114-115, 159,175,303 Risk-free strategy, 202 Risk-free yield curve, 436 Risk function, 15-16 Riskless asset, 45 Risk management: benchmarks, 28 decomposition of risk, 34-35 dimensions of, 251, 277 program implementation, see Risk monitoring program purpose of, 27-28, 35 risk budget, see Risk budget/budgeting risk plan, 253-255 significance of, 29-30 strategic asset allocation, 108-109 strategies, generally, 7-9, 12 stress test, 30-32 three-legged stool, 253-258 utility function, 32-33 Value at Risk (VaR), 28-29, 35 volatility, 35 Risk management unit (RMU): credit risk monitoring, 268 examples of, 261-266 formation of, 258-259 objectives of, 251, 260-261 performance attribution, 273 performance measurement, 271, 275 philosophies/processes, 270, 279-280 risk budget, 278 Risk measurement: asset allocation, 24-25 benchmarks, 25 risk budget, 24-27 risk tolerance, 25 significance of, 14-15, 24-26 source of risk, 33-34