A long criticism on the usefulness of the traditional CAPM model has been raised in the vast literature of arbitrage pricing models that propose several risk factors on firm fundamentals or investigate the stochastic properties of stock returns' distributions, (Fama and French (2004)). However,...

Volatility models of the market portfolio's return are central to financial risk management. Within an equilibrium framework, we introduce an implementation method and study two families of such models. One is deterministic volatility, represented by current popular models. Another is in the...

Modeling cross-sectional correlations between thousands of stocks, acrosscountries and industries, can be challenging. In this paper, we demonstratethe advantages of using Hierarchical Principal Component Analysis (HPCA)over the classic PCA. We also introduce a statistical clustering algorithmto...

In this paper, we propose a general data-driven framework that unifies the valuation and risk measurement of financial derivatives, which is especially useful in markets with thinly-traded derivatives. We first extract the empirical characteristic function from market-observable time series for...

In this paper, we propose a general data-driven framework that unifies the valuation and risk measurement of financial derivatives, which is especially useful in markets with thinly-traded derivatives. We first extract the empirical characteristic function from market-observable time series for...

This paper proposes a new time-varying minimum variance portfolio (TV-MVP) in a large investment universe of assets. Our method extends the existing literature of minimum variance portfolio by allowing for time-varying factor loadings, which is the facilitator to capture the dynamics of asset...

We investigate how to best model skewness for portfolio choice decisions. To this end, we compare the predictive ability and portfolio performance of several prominent skewness models in a sample of ten international equity market indices. Overall, models that employ information from the option...

Despite a rich academic literature dedicated to mutual fund performance, the question of the portfolio manager added value remains subject to discussion. The debate between active and passive investing is expected to last while there is no consensus on the appropriate measure for evaluating a...