A novel approach for stress-testing (portfolios of) financial assets is presented. The technique extends the parametric Entropy Pooling approach to skewed and thick-tailed markets. The technique rests on a copula-marginal decomposition for the entropy together with several approximation schemes...

Few papers provide research about options returns, and the few available are focused in the analysis from the perspective of the long side of the option contract, i.e. the buyer that pays the price and her expected and realized option return. The main point of our research work is to provide a...

Modelling and forecasting of asset volatility and covariance is of prime importance in the construction of portfolios. In this paper, we present a generalised multi-factor model that incorporates heteroskedasticity and dependence in the idiosyncratic error terms. We apply this model to...

We introduce a simple approach to managing portfolio interest rate risk that is consistent and performs well across different interest rate regimes, including when interest rates are low or even negative. Inspired by Black (1995), this approach uses a novel inverse-call transformation...

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

We introduce Dynamic Entropy Pooling, a quantitative technique to perform dynamic portfolio construction with discretionary, non-synchronous views. With Dynamic Entropy Pooling, the portfolio manager can embed in the allocation process signals with life spans ranging from minutes to years,...

When analyzing options returns, most papers tend to focus on the expected and realized return from strategies where the investors are long on those financial instruments. We conduct a test searching for excess returns on passive options investment strategies resorting to a four factor model,...

This paper analyses the fundamental drivers of risk and return in portfolios of private equity fund investments. We draw on a large data set of 771 mature European and North American primary buyout funds with historic performance information from Preqin covering vintages from 1998-2007. Using...

In aftermath of the Financial Crisis, some risk management practitioners advocate wider adoption of Bayesian inference to replace Value-at-Risk (VaR) models for minimizing risk failures (Borison & Hamm, 2010). They claim reliance of Bayesian inference on subjective judgment, the key limitation...

We measure the contributions to risk of a set of factors, strategies, or investments, based on "Minimum-Torsion Bets", namely a set of uncorrelated factors, optimized to closely track the factors used to allocate the portfolio. We then introduce a novel definition of contributions to risk, which...