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The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
Given a new candidate asset represented as a time series of returns, how should a quantitative investment manager be thinking about assessing its usefulness? This is a key qualitative question inherent to the investment process which we aim…
Diversification of an investment into independently fluctuating assets reduces its risk. In reality, movement of assets are are mutually correlated and therefore knowledge of cross--correlations among asset price movements are of great…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to…
Science progresses by building upon previous discoveries. It is commonly believed that the impact of scientific papers, as measured by citations, is positively correlated with the impact of past discoveries built upon. However, analyzing…
The correlation coefficient between stocks depends on price history and includes information on hierarchical structure in financial markets. It is useful for portfolio selection and estimation of risk. I introduce the Life Time of…
Equity basket correlation can be estimated both using the physical measure from stock prices, and also using the risk neutral measure from option prices. The difference between the two estimates motivates a so-called "dispersion strategy''.…
We analyze correlations among stock returns via a series of widely adopted parameters which we refer to as explanatory variables. We subsequently exploit the results to propose a long only quantitative adaptive technique to construct a…
An analysis of the stylized facts in financial time series is carried out. We find that, instead of the heavy tails in asset return distributions, the slow decay behaviour in autocorrelation functions of absolute returns is actually…
As financial instruments grow in complexity more and more information is neglected by risk optimization practices. This brings down a curtain of opacity on the origination of risk, that has been one of the main culprits in the 2007-2008…
In the present paper, the minimal investment risk for a portfolio optimization problem with imposed budget and investment concentration constraints is considered using replica analysis. Since the minimal investment risk is influenced by the…
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a…
How can graph theory be applied to investing in the stock market? The answer may help investors realize the true risks of their investments, help prevent recessions like that of 2008, and increase financial literacy amongst students. Using…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
We estimate generic statistical properties of a structural credit risk model by considering an ensemble of correlation matrices. This ensemble is set up by Random Matrix Theory. We demonstrate analytically that the presence of correlations…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
In this paper we use wavelet concepts to show that correlation coefficient between two financial data's is not constant but varies with scale from high correlation value to strongly anti-correlation value This studies is important because…
The existing approaches to sparse wealth allocations (1) are limited to low-dimensional setup when the number of assets is less than the sample size; (2) lack theoretical analysis of sparse wealth allocations and their impact on portfolio…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…