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Covariance appears throughout investment management, e.g., in risk reporting and control, portfolio construction, risk parity, smart beta, algorithmic trading, and hedging. It is usually represented via multi-factor model. The form’s fewer parameters and structure—comovement through...
Persistent link: https://www.econbiz.de/10013251623
Historical VaR, CVaR and ES (Expected Shortfall) to LIQUIDATION Software is a model characterized by its straightforwardness, allowing regulators measure risk using a standard database of primitive factors and portfolio positions only, leaving little error margin in comparing market risk for...
Persistent link: https://www.econbiz.de/10013003836
Asset allocation strategies which utilize stop-loss and stop-gain rules may dramatically decrease risk and even increase long-term return relative to passive investing. I introduce an asset allocation strategy which shifts portfolio weights based on simplistic stop rules. The two-asset (S&P...
Persistent link: https://www.econbiz.de/10013007428
We consider an investor who faces parameter uncertainty in a continuous-time financial market. We model the investor's preference by a power utility function leading to constant relative risk aversion. We show that the loss in expected utility is large when using a simple plug-in strategy for...
Persistent link: https://www.econbiz.de/10013033022
The Modern Portfolio Theory (MPT) has been the cornerstone of the asset allocation for over 40 years. In the past …, such as the recent sub-prime crisis. The proposed Leveraged Portfolio Theory (LPT) removes the most fundamental axiom of …
Persistent link: https://www.econbiz.de/10012905661
Risk decomposition is a standard tool for analyzing investment portfolio risk. The portfolio is divided into notional parts—e.g., individual securities, holdings by sector or region, factor exposures—whose contributions to net risk are estimated and reported. Convention regards the...
Persistent link: https://www.econbiz.de/10013234910
The paper is an empirical research work wherein the principle of Modern Portfolio Theory along with aspects of … geographical diversification have been subjected to test. The validation of the said theory has been made via hypothesis testing in …
Persistent link: https://www.econbiz.de/10013102156
We study Aumann and Serrano's (2008) risk index for sums of gambles that are not dependent. If the dependent parts are similarly ordered, then the risk index of the sum is always larger than the minimum of the risk indices of the two gambles. For negative dependence, the risk index of the sum is...
Persistent link: https://www.econbiz.de/10010469296
This paper analyses and develops insights to systematic risk and diversification when random, imperfectly dependent, losses are aggregated. Systematic risk and diversification are shown to vary across layers of component losses according to local dependence and volatility structures. Systematic...
Persistent link: https://www.econbiz.de/10013014384
This paper develops new financial theory to link the third order stochastic dominance for risk-averse and risk …
Persistent link: https://www.econbiz.de/10012850629