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Managing Material Risk
Jul 1, 2022
This paper, published by the CFA Institute Research Foundation, originally appeared on Fabricrisk.com. MSCI purchased Fabric — now known as MSCI Fabric — in December 2023.
Risk management for individuals and other asset owners differs from that of financial institutions and, in fact, is more complex. A fresh mindset and new tools are required for these market participants. The authors propose measuring material risk through agent-based models (ABMs), which are designed to react to the current market environment, project forward risk and employ scenarios that incorporate market dynamics. ABMs can embrace both an individual’s unique heuristics and the market’s movements and changing relationships, thereby providing a framework well suited to a long-term investor’s decisions and goals.
Research authors
- Rick Bookstaber, Managing Director, MSCI Research
- Dhruv Sharma, Executive Director, MSCI Wealth Product
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