We introduce "factors on demand", a modular, multi-asset-class return decomposition framework that extends beyond the standard systematic-plus-idiosyncratic approach. This framework, which rests on the conditional link between flexible bottom-up estimation factor models and flexible top-down...

We present a simple method to generate scenarios from multivariate elliptical distributions where the sample mean and covariances match the respective population moments. This methodology easily applies to large numbers of scenarios and large-dimensional distributions. We show an application to...

We introduce the multivariate Ornstein-Uhlenbeck and discuss how it generalizes a vast class of continuous-time and discrete-time multivariate processes. Relying on the simple geometrical interpretation of the dynamics of the Ornstein-Uhlenbeck process we introduce cointegration and its...

By default, most investors equate a passive investment such as a traditional market capitalisation based index with a welldiversified investment. However, “diversified” and “passive” should not a priori be considered as synonymous. We have attempted to show that “passive” should not...

The article focuses on the categorisation of indexing methods in equity space. Based on the theoretical concepts of the various index methods, we first conduct a qualitative categorisation. In a second step, we try to validate it with a formal statistical analysis. We conclude that many indexing...

We clarify the rationale and differences between the two main categories of linear factor models, namely dominant-residual and systematic-idiosyncratic. We discuss the five different, yet interconnected areas of quantitative finance where linear factor models play an essential role: multivariate...

Using NCRIEF farmland and timberland smoothed indices over the period from 1992Q1 to 2012Q3 and a new de-smoothing approach offered by Fisher et al. (1994), we explore the mean-variance diversification features of farmland and timberland assets. Our empirical results show that diversification...

At its core, portfolio and risk management is about gathering and processing market-related data in order to make effective investment decisions. To this end, risk and return statistics are estimated from relevant financial data and used as inputs within the investment process. It is this...