Risk Control: There are two main subsections and the functionality of each is described briefly below. For a more comprehensive description please refer to FAQ: Risk Control

 

In the event that the user does not have a strong view on an individual market, or on a range of markets, passive control is the appropriate analysis methodology. In this case the user can select the risk measure over which the portfolio is to be optimised (typically volatility / variance or kurtosis), and the instruments from which to find the "optimal" portfolio. The output of the analysis is in the form that the user has specified in their preferences.

Typically passive control hold the greatest utility in the area of risk reduction, where the user is seeking to reduce risk in the most efficient manner possible. The functionality also allows the user to monitor the cost of liquidation, a valuable tool to determine the evolving liquidity of a portfolio.

 

Active control is used when the user wants the optimiser to take into account specific views on particular assets or assets that the user holds, or would like to hold within their portfolio. The methodology presented is based on Black-Litterman but includes variations based on work by Meucci.

Active control is most often used when the user is seeking to increase of modify the current risk of the portfolio. The functionality presented also includes matrix metrics such as Kullback-Leibler, to allow for an extimation of the relative stabilities of the prior and active portfolio.

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