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 introduce a new framework to integrate liquidity risk, funding risk and market risk, which goes beyond the simple bid-ask spread overlay to a VaR number. In our approach, we overlay a whole distribution of liquidity uncertainty to each future market-risk scenario. Then we allow for the...

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...

We develop in this paper a novel portfolio selection framework with a feature of dual robustness in both return distribution modeling and portfolio optimization. While predicting the return distributions of the future market always represents the most compelling challenge in investment, any...

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...

A tree-structured linear and quantile regression framework is proposed for the analysis and modeling of equity market returns. The approach is based on the idea of a binary tree, where every terminal node parameterizes a local regression model for a specific partition of the data. A Bayesian...

A perennial question in international finance is to what extent stock returns are influenced by country-location, as opposed to industry-affiliation, factors. This paper develops a novel methodology to measure these effects, in which portfolios mimicking pure country and industry factors are...