Related papers: Estimation of inter-sector asset correlations

Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…

We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the…

In this article there is no intention to repeat basic concepts about risk management, but we will try to define why often is usefull the time series analysis during the assessment of risks, and how is possible to compute a significative…

Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…

We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…

Given a sequence of sets, where each set contains an arbitrary number of elements, the problem of temporal sets prediction aims to predict the elements in the subsequent set. In practice, temporal sets prediction is much more complex than…

Mixed Probit models are widely applied in many fields where prediction of a binary response is of interest. Typically, the random effects are assumed to be independent but this is seldom the case for many real applications. In the credit…

Credit risk assessment is a crucial aspect of financial decision-making, enabling institutions to predict the likelihood of default and make informed lending decisions. Two prominent methodologies in credit risk modeling are logistic…

This paper introduces an econometric framework for analyzing cross-sectional dependence in the idiosyncratic volatilities of assets using high frequency data. We first consider the estimation of standard measures of dependence in the…

When assets are correlated, benefits of investment diversification are reduced. To measure the influence of correlations on investment performance, a new quantity - the effective portfolio size - is proposed and investigated in both…

We develop a general approach for stress testing correlations of financial asset portfolios. The correlation matrix of asset returns is specified in a parametric form, where correlations are represented as a function of risk factors, such…

Cross-correlation analysis is a powerful tool for understanding the mutual dynamics of time series. This study introduces a new method for predicting the future state of synchronization of the dynamics of two financial time series. To this…

In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…

We consider a portfolio allocation problem for trend following (TF) strategies on multiple correlated assets. Under simplifying assumptions of a Gaussian market and linear TF strategies, we derive analytical formulas for the mean and…

This paper describes the dependence of market-based statistical moments of returns on statistical moments and correlations of the current and past trade values. We use Markowitz's definition of value weighted return of a portfolio as the…

Despite the excelling performance of machine learning models, understanding their decisions remains a long-standing goal. Although commonly used attribution methods from explainable AI attempt to address this issue, they typically rely on…

We discovered that past changes in the market correlation structure are significantly related with future changes in the market volatility. By using correlation-based information filtering networks we device a new tool for forecasting the…

A procedure for the evaluation of correlators of any order in a reasonable computer time is presented. Connection between correlators and fluctuations of the event mean values of observables is discussed. Extension of the procedure to…

It is commonly assumed that a specific testing occasion (task, design, procedure, etc.) provides insights that generalise beyond that occasion. This assumption is infrequently carefully tested in data. We develop a statistically principled…

Complex, interdependent systems are necessary to the delivery of goods and services critical to societal function. Here we demonstrate how interdependent systems respond to disruptions. Specifically, we change the spatial arrangement of a…