Traditional portfolio optimization models specify placement of capital as rather irrevocably and fully at risk through investment horizon(s) or continuously. Under this constraint, asset class allocation typically serves as primary mode of diversification, pursuing risk moderation by seeking to...

Financial stress indices (FSIs) involve the weighting and compilation of different sub-indices and indicators into an overall measure of systemic stress. Despite the importance of weighting with regard to the relevance of single indices or indicators (structural effect), the behavior of the...

In recent years both equity and bond markets have been afflicted by high volatility. In order to build up a portfolio on a quantitative basis, several models may be used, such as minimum variance portfolio or equally weighted portfolio. In 2008/09 another way to deal with diversification came...

This paper investigates the time-varying relationship between the oil price and disaggregated stock market of India using dynamic conditional correlation multivariate GARCH and continuous wavelet transformation modelling approaches. Our findings reveal the evolving relationship between the oil...

Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper...

Model risk as part of the operational risk is a serious problem for financial institutions. As the pricing of derivatives as well as the computation of the market or credit risk of an institution depend on statistical models the application of a wrong model can lead to a serious over- or...

Normal distribution of the residuals is the traditional assumption in the classical multivariate time series models. Nevertheless it is not very often consistent with the real data. Copulae allows for an extension of the classical time series models to nonelliptically distributed residuals. In...

Classical asset allocation methods have assumed that the distribution of asset returns is smooth, well behaved with stable statistical moments over time. The distribution is assumed to have constant moments with e.g., Gaussian distribution that can be conveniently parameterised by the first two...

In this paper we consider the problem of inference on a class of sets describing a collection of admissible models as solutions to a single smooth inequality. Classical and recent examples include, among others, the Hansen-Jagannathan (HJ) sets of admissible stochastic discount factors,...