Risks and Limitations

Core idea

Market-neutral strategies retain model, basis, leverage, liquidity, financing, counterparty, and execution risk even when directional exposure is low. Risk controls should describe how each failure is measured and limited.

Implementation

Risk budgets should be tested against spread widening, funding changes, missing liquidity, and correlated exits.

Primary risk

Several small residual risks can become one large loss during a regime change.

Frequently asked questions

What is risks and limitations?

Market-neutral strategies retain model, basis, leverage, liquidity, financing, counterparty, and execution risk even when directional exposure is low. Risk controls should describe how each failure is measured and limited.

What is the main risk of risks and limitations?

Several small residual risks can become one large loss during a regime change.