Chapter 05 · Section 5.1

Risk Profiles

It is therefore much more common to see risk profiles in the form of yields (or Profit/Loss values) vs. the value of one of those parameters, such as:

Profit/Loss of a diversified (and hedged) stock portfolio vs. the value of the index that the un-hedged portfolio tries to match.
Yield of the same portfolio vs. the implicit volatility of an index option that was used for the hedge.

The following screens show a simple example of how to modify the risk profile of a portfolio.