Related papers: A six-factor asset pricing model
Quantitative Investment, built on the solid foundation of robust financial theories, is at the center stage in investment industry today. The essence of quantitative investment is the multi-factor model, which explains the relationship…
This paper presents a portfolio construction process, including mainly two parts, Factors Selection and Weight Allocations. For the factors selection part, We have chosen 20 factors by considering three aspects, the global market, different…
We propose a fast algorithm for computing the economic capital, Value at Risk and Greeks in the Gaussian factor model. The algorithm proposed here is much faster than brute force Monte Carlo simulations or Fourier transform based methods…
Accurate volatility forecasts are vital in modern finance for risk management, portfolio allocation, and strategic decision-making. However, existing methods face key limitations. Fully multivariate models, while comprehensive, are…
Factor models have become a common and valued tool for understanding the risks associated with an investing strategy. In this report we describe Exabel's factor model, we quantify the fraction of the variability of the returns explained by…
The paper builds a Variance-Gamma (VG) model with five parameters: location ($\mu$), symmetry ($\delta$), volatility ($\sigma$), shape ($\alpha$), and scale ($\theta$); and studies its application to the pricing of European options. The…
This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and…
We propose a modified time lag random matrix theory in order to study time lag cross-correlations in multiple time series. We apply the method to 48 world indices, one for each of 48 different countries. We find long-range power-law…
We introduce a new dynamic factor correlation model with a novel variation-free parametrization of factor loadings. The model is applicable to high dimensions and can accommodate time-varying correlations, heterogeneous heavy-tailed…
Traditional approaches to financial asset allocation start with returns forecasting followed by an optimization stage that decides the optimal asset weights. Any errors made during the forecasting step reduce the accuracy of the asset…
Identifying the number of factors in a high-dimensional factor model has attracted much attention in recent years and a general solution to the problem is still lacking. A promising ratio estimator based on the singular values of the lagged…
In this paper, we empirically study models for pricing Italian sovereign bonds under a reduced form framework, by assuming different dynamics for the short-rate process. We analyze classical Cox-Ingersoll-Ross and Vasicek multi-factor…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
We consider the problem of optimizing a portfolio of financial assets, where the number of assets can be much larger than the number of observations. The optimal portfolio weights require estimating the inverse covariance matrix of excess…
We present a variation of the well-known binomial model of asset prices. This variation incorporates a bound to short-selling, inspired by a model from Gunduz Caginalp[2]. We formalize this model and prove a formula for all the moments of…
The capital asset pricing model (CAPM) is readily used to capture a linear relationship between the daily returns of an asset and a market index. We extend this model to an intraday high-frequency setting by proposing a functional CAPM…
Several large volatility matrix inference procedures have been developed, based on the latent factor model. They often assumed that there are a few of common factors, which can account for volatility dynamics. However, several studies have…
Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies. Despite its popularity, little attention has been paid to the statistical properties of the procedure. We…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We propose a novel approach to sentiment data filtering for a portfolio of assets. In our framework, a dynamic factor model drives the evolution of the observed sentiment and allows to identify two distinct components: a long-term…