The patent, System and Method for Providing Reallocation and Reverse Optimization of a Financial Portfolio Using a Parametric Leptokurtic Distribution (USP 7,890,409), provides a framework for assessing the marginal contribution to Expected Tail Loss (ETL) and the implied return based on ETL optimal weights for each asset in a portfolio. The approach offers asset managers more accurate allocation guidelines than traditional risk budgeting and reverse optimization techniques using volatility or VaR as the measure of risk.
As asset managers strive for more accurate and efficient ways to balance risk and return in their multi-asset portfolios, tail risk budgeting and the related reverse optimization techniques are designed to guide the investment decision making and allocation process by looking at individual asset risk and return contributions and focusing on reallocation as a way to maximize performance. With the tail risk budgeting module in Cognity, investors have the ability to not only monitor the performance of the individual assets, but also measure how the assets interact within the portfolio.
David Merrill, FinAnalytica CEO, said, âIncorporating the patented risk budgeting functionality elevates investors, giving them the advanced ability to work on multi-asset class portfolios in new ways. As the global economy slowly continues to improve, the new risk budgeting tool will help our clients make safer portfolio investment decisions.â
Boryana Racheva-Iotova, FinAnalytica President, commented, âBeing awarded the new patent solidifies our companyâs achievement of building a truly innovative portfolio performance tool. Using tail risk budgeting, investors will now be able to increase their full return potential by minimizing tail risk and maximizing tail risk-adjusted returns.â
This patent, the fourth awarded to FinAnalytica since 2009, culminates a year of significant growth and achievement for FinAnalytica in which it has been named Top Innovator in the Chartis Research RiskTech 2010 Rankings and Best Market Risk Solution Provider 2010 by Waters.