Related papers: Continuous Risk Factor Models: Analyzing Asset Cor…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
We analyze the price return distributions of currency exchange rates, cryptocurrencies, and contracts for differences (CFDs) representing stock indices, stock shares, and commodities. Based on recent data from the years 2017--2020, we model…
We live in a multivariate world, and effective modeling of financial portfolios, including their construction, allocation, forecasting, and risk analysis, simply is not possible without explicitly modeling the dependence structure of their…
Behavioral Finance has become a challenge to the scientific community. Based on the assumption that behavioral aspects of investors may explain some features of the Stock Market, we propose an agent based model to study quantitatively this…
This paper introduces a consistent estimator and rate of convergence for the precision matrix of asset returns in large portfolios using a non-linear factor model within the deep learning framework. Our estimator remains valid even in low…
This paper investigates how to measure common market risk factors using newly proposed Panel Quantile Regression Model for Returns. By exploring the fact that volatility crosses all quantiles of the return distribution and using penalized…
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
Accurate covariance forecasting is central to portfolio allocation, risk management, and asset pricing, yet many existing methods struggle at medium-term horizons, where shifting market regimes and slower dynamics predominate. We propose a…
This paper proposes a new method for financial portfolio optimization based on reducing simultaneous asset shocks across a collection of assets. This may be understood as an alternative approach to risk reduction in a portfolio based on a…
Continued interest in sustainable investing calls for an axiomatic approach to measures of risk and reward that focus not only on financial returns, but also on measures of environmental and social sustainability, i.e. environmental,…
In light of the power problems of statistical tests and undisciplined use of alpha-based statistics to compare models, this paper proposes a unified set of distance-based performance metrics, derived as the square root of the sum of squared…
Prediction models calibrated using historical data may forecast poorly if the dynamics of the present and future differ from observations in the past. For this reason, predictions can be improved if information like forward looking views…
This paper proposes a dynamic process of portfolio risk measurement to address potential information loss. The proposed model takes advantage of financial big data to incorporate out-of-target-portfolio information that may be missed when…
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…
In this paper we attempt to introduce an econophysics approach to evaluate some aspects of the risks in financial markets. For this purpose, the thermodynamical methods and statistical physics results about entropy and equilibrium states in…
In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
Asset allocation is an investment strategy that aims to balance risk and reward by constantly redistributing the portfolio's assets according to certain goals, risk tolerance, and investment horizon. Unfortunately, there is no simple…
Classical asset pricing relies on the risk-neutral measure $Q$ for valuation, yet its economic interpretation is typically anchored in a physical measure $P$. This creates an inherent asymmetry: pricing is governed by $Q$, while meaning…
We propose to interpret distribution model risk as sensitivity of expected loss to changes in the risk factor distribution, and to measure the distribution model risk of a portfolio by the maximum expected loss over a set of plausible…