Should long-term investors account for time-variation in model parameters? We develop a time-varying Vector Autoregressive model that can handle time-variation in intercepts, slopes, volatility and correlation, the leverage effect in volatility and fat tails. Long-term investors should take...

We derive the optimal hedging ratios for a portfolio of assets driven by a Cointegrated Vector Autoregressive model with general cointegration rank. Our hedge is optimal in the sense of minimum variance portfolio.We consider a model that allows for the hedges to be cointegrated with the hedged...

This paper examines inflation and the role of inflation-hedging assets in an institutional portfolio. Even in the current environment of low realized inflation, inflation risk remains, in the form of inflation surprises, which have historically been damaging for equity and bond portfolios....

We provide a methodology for credit risk analysis that can be embedded into a risk appetite framework. We analyze the information content in CDS spreads to estimate the systematic and idiosyncratic components of credit risk for CDS issuers in the industrial sector of Europe. Such decomposition...

Multivariate GARCH models do not perform well in large dimensions due to the so-called curse of dimensionality. The recent DCC-NL model of Engle et al. (2019) is able to overcome this curse via nonlinear shrinkage estimation of the unconditional correlation matrix. In this paper, we show how...

We derive the optimal hedging ratios for a portfolio of assets driven by a Cointegrated Vector Autoregressive model (CVAR) with general cointegration rank. Our hedge is optimal in the sense of minimum variance portfolio.We consider a model that allows for the hedges to be cointegrated with the...

The financial market presents non-linearities for the behavior of stock returns for periods of high and low market. This article studies portfolios whose variance-covariance matrices are estimates using a multivariate model with regime change. Investment strategies for portfolios are presented...

Financial crises are typically characterized by highly positively correlated asset returns due to the simultaneous distress on almost all securities, high volatilities and the presence of extreme returns. In the aftermath of the 2008 crisis, investors were prompted even further to look for...

Investigating linkages between credit and equity markets, we consider daily aggregate U.S. CDS spreads as well as well-chosen equity market and implied volatility indexes over ten years. We describe such robust (to spurious correlation) relationship with the quantile cointegrating regression...

The standard noninformative prior for Bayesian portfolio selection implies strong and unreasonable prior information about the achievable Sharpe ratio. This has critical implications for portfolio selection. We develop a reparametrization that allows to specify a prior which is flat in the...