In this article, we extend the standard paradigm for portfolio stress testing in two ways. First, we introduce a structured set of tools that enable investors to envision and administer extreme scenarios. We show how to take account of historical and hypothetical covariance matrices in scenario...

Factor models are standards in investment management. For decades, Barra factor models have provided valuable risk forecasts and inputs for the portfolio construction process. Most uses of factor models have targeted longer horizons of months or years. However, we demonstrate in this paper that...

Risk analysis involves gaining deeper insight into the sources of risk, and evaluating whether these risks accurately reflect the views of the portfolio manager. In this paper, we show how to extend standard volatility analytics to shortfall, a measure of extreme risk. Using two examples, we...

Main description: Portfolio risk forecasting has been and continues to be an active research field for both academics and practitioners. Almost all institutional investment management firms use quantitative models for their portfolio forecasting, and researchers have explored models' econometric...

Portfolio risk forecasting has been and continues to be an active research field for both academics and practitioners. Almost all institutional investment management firms use quantitative models for their portfolio forecasting, and researchers have explored models' econometric foundations,...