forward-risk
Forward-Looking Risk Analysis
Purpose
Estimate potential future losses and risk exposures using parametric models, simulation, and scenario analysis. This skill covers parametric and Monte Carlo Value-at-Risk, Conditional VaR (Expected Shortfall), component and marginal VaR, stress testing, scenario analysis, and factor-based risk decomposition. These tools are essential for portfolio risk management and regulatory capital calculations.
Layer
1b — Forward-Looking Risk
Direction
Prospective
When to Use
- Estimating potential future losses for a portfolio or position
- Computing parametric VaR (variance-covariance method) for normally distributed returns
- Running Monte Carlo simulations to estimate VaR for non-normal distributions
- Computing CVaR / Expected Shortfall to understand tail risk beyond VaR
- Decomposing portfolio risk into component and marginal contributions
- Performing scenario analysis with historical or hypothetical shocks
- Stress testing portfolios under extreme but plausible conditions
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