Related papers: Multifactor Risk Models and Heterotic CAPM
This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the…
In this contribution we consider the overall risk given as the sum of random subrisks $\mathbf{X}_j$ in the context of value-at-risk (VaR) based risk calculations. If we assume that the undertaking knows the parametric distribution family…
We demonstrate that machine learning methods provide a powerful framework for modelling conditional asymmetric risk. Using a large cross-section of US stocks and a comprehensive set of firm characteristics, we show that allowing for…
A meta-model of the input-output data of a computationally expensive simulation is often employed for prediction, optimization, or sensitivity analysis purposes. Fitting is enabled by a designed experiment, and for computationally expensive…
We will amalgamate the Rash model (for rectangular binary tables) and the newly introduced $\alpha$-$\beta$ models (for random undirected graphs) in the framework of a semiparametric probabilistic graph model. Our purpose is to give a…
The modal factor model represents a new factor model for dimension reduction in high dimensional panel data. Unlike the approximate factor model that targets for the mean factors, it captures factors that influence the conditional mode of…
The purpose of this research article is to discover how the econophysics analysis can complement the econometrics models in application to the risk management in the central banks and financial institutions, operating within the nonlinear…
A plethora of static and dynamic models exist to forecast Value-at-Risk and other quantile-related metrics used in financial risk management. Industry practice tends to favour simpler, static models such as historical simulation or its…
For long term investments, model portfolios are defined at the level of indexes, a setup known as Strategic Asset Allocation (SAA). The possible outcomes at a scale of a few decades can be obtained by Monte Carlo simulations, resulting in a…
Recent studies document strong empirical support for multifactor models that aim to explain the cross-sectional variation in corporate bond expected excess returns. We revisit these findings and provide evidence that common factor pricing…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
This papers proposes a generic, high-level methodology for generating forecast combinations that would deliver the optimal linearly combined forecast in terms of the mean-squared forecast error if one had access to two population…
Cryptocurrency trading represents a nascent field of research, with growing adoption in industry. Aided by its decentralised nature, many metrics describing cryptocurrencies are accessible with a simple Google search and update frequently,…
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…
In finance, economics and many other fields, observations in a matrix form are often observed over time. For example, many economic indicators are obtained in different countries over time. Various financial characteristics of many…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…
The CAPM regression is typically interpreted as if the market return contemporaneously \emph{causes} individual returns, motivating beta-neutral portfolios and factor attribution. For realized equity returns, however, this interpretation is…
The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this…
We determine the number of statistically significant factors in a forecast model using a random matrices test. The applied forecast model is of the type of Reduced Rank Regression (RRR), in particular, we chose a flavor which can be seen as…