The Windham Portfolio Advisor 113
Risk budgets^7
The WPA converts optimal portfolio allocations into a risk budget. A risk budget
shows the value at risk associated with each portfolio allocation in isolation.
The WPA also shows each allocation’s contribution to the total portfolio
value at risk.
The WPA also presents the risk budget in terms of continuous value at risk.
Wealth and income analysis
The WPA displays the distribution for wealth and income at the end of the
investment horizon, taking into account the expected return and risk of the
selected portfolio, the effective tax rate, and cash flows.
The WPA estimates the potential wealth and income of selected portfolios
at different dates throughout the investment horizon, for a chosen level of
confidence.
All values are shown before and after inflation.
Custom reports
The WPA allows the user to select content for a customized report. The user
can select the relevant pages and input the client characteristics. Reports are
generated quickly and can be printed or converted to Adobe ® PDF format.
References
Chow , G. ( 1995 ). Portfolio selection based on return, risk, and relative performance.
Financial Analysts Journal ( March–April ).
Chow , G. , Jacquier , E. , Kritzman , M. , & Lowry , K. ( 1999 ). Optimal portfolios in good
times and bad. Financial Analysts Journal ( May–June ).
Chow , G. , & Kritzman , M. ( 2001 ). Risk budgets. The Journal of Portfolio Management
( Winter ).
Cremers , J.-H. , Kritzman , M. , & Page , S. ( 2005 ). Optimal hedge fund allocations: Do
higher moments matter? The Journal of Portfolio Management ( Spring ).
Karlin , S. , & Taylor , H. ( 1975 ). A first course in stochastic processes ( 2nd edition ).
Academic Press.
Kritzman , M. , Lowry , K. , & Van Royan , A.-S. ( 2001 ). Risk, regimes, and overconfi-
dence. The Journal of Derivatives ( Spring ).
Kritzman , M. , & Rich , D. ( 2001 ). The mismeasurement of risk. Financial Analysts
Journal ( May/June ).
7 See Chow et al (2001) for further discussion of risk budgets.