Implementing risk appetite in the management of currency portfolios
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- Luo, J., Saks, P. & Satchell, S. J Asset Manag (2009) 9: 380. doi:10.1057/jam.2008.40
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This paper investigates the concept of risk appetite. A number of methodologies for building a risk appetite index are proposed. It is shown how this index can be utilised to improve portfolio construction in currency markets. Portfolios are constructed using quadratic optimisation. Different strategies, in particular Carry, Value and Momentum, are combined via our optimisation procedure, leading to return outcomes that possess certain desirable properties relative to an equally weighted benchmark.