This paper introduces the CORE methodology for managing risk of multi-market central-counterparties. CORE generalizes the classical SPAN method of stress scenarios by incorporating explicitly market liquidity of listed instruments and modeling the liquidity pro file of OTC instruments and the...

Portfolio risk, introduced by Markowitz in 1952, and defined as the standard deviation of the portfolio return, is an important metric in the Modern Portfolio Theory (MPT). A popular method for portfolio selection is to manage the risk and return of a portfolio according to the...

This paper discusses portfolio construction for investing in N given assets, e.g. constituents of the Dow Jones Industrial Average (DJIA) or large cap stocks, which is based on partitioning the investment universe into clusters. The clusters are determined from the trailing correlation matrix...

It is widely known that the common risk-factors derived from PCA beyond the first eigenportfolio are generally difficult to interpret and thus to use in practical portfolio management. We explore a alternative approach (HPCA) which makes strong use of the partition of the market into sectors. We...

Modeling cross-sectional correlations between thousands of stocks, acrosscountries and industries, can be challenging. In this paper, we demonstratethe advantages of using Hierarchical Principal Component Analysis (HPCA)over the classic PCA. We also introduce a statistical clustering algorithmto...

We introduce a model-free approach based on {\it excursions} of trading signals for analyzing the risk and return for a broad class of dynamic trading strategies, including pairs trading and other statistical arbitrage strategies. We propose a mathematical framework for the risk analysis of such...