A Shortcut to Sign Incremental Value at Risk for Risk Allocation Available to Purchase

Incremental value at risk (IVaR) is becoming a standard tool to identify investment strategies that enhance risk‐adjusted returns. Recently, practice‐oriented research has focused applying IVaR to hedging and speculating with options and risk reduction. IVaR approximation methods provide easily applied preliminary guidelines for risk allocation. This article examines two such approaches.