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Income and risk coexist, yet investors are often so focused on chasing high returns that they overlook the potential risks that can lead to high losses. Therefore, risk forecasting and risk control is the cornerstone of investment. To…
Searching for new effective risk factors on stock returns is an important research topic in asset pricing. Factor modeling is an active research topic in statistics and econometrics, with many new advances. However, these new methods have…
We study factor models augmented by observed covariates that have explanatory powers on the unknown factors. In financial factor models, the unknown factors can be reasonably well explained by a few observable proxies, such as the…
This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…
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…
Individual risk models need to capture possible correlations as failing to do so typically results in an underestimation of extreme quantiles of the aggregate loss. Such dependence modelling is particularly important for managing credit…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
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…
In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…
Modeling and managing portfolio risk is perhaps the most important step to achieve growing and preserving investment performance. Within the modern portfolio construction framework that built on Markowitz's theory, the covariance matrix of…
The Fama-French three factor models are commonly used in the description of asset returns in finance. Statistically speaking, the Fama-French three factor models imply that the return of an asset can be accounted for directly by the…
Latent factor model estimation typically relies on either using domain knowledge to manually pick several observed covariates as factor proxies, or purely conducting multivariate analysis such as principal component analysis. However, the…
Latent or unobserved phenomena pose a significant difficulty in data analysis as they induce complicated and confounding dependencies among a collection of observed variables. Factor analysis is a prominent multivariate statistical modeling…
This paper introduces a novel approach to financial risk analysis that does not rely on traditional price and market data, instead using market news to model assets as distributions over a metric space of risk factors. By representing asset…
The paper considers linear regression problems where the number of predictor variables is possibly larger than the sample size. The basic motivation of the study is to combine the points of view of model selection and functional regression…
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…
Understanding variable dependence, particularly eliciting their statistical properties given a set of covariates, provides the mathematical foundation in practical operations management such as risk analysis and decision-making given…
Motivated by practical applications, we explore the constrained multi-period mean-variance portfolio selection problem within a market characterized by a dynamic factor model. This model captures predictability in asset returns driven by…
Modeling and characterizing multiple factors is perhaps the most important step in achieving excess returns over market benchmarks. Both academia and industry are striving to find new factors that have good explanatory power for future…
Human mortality data sets can be expressed as multiway data arrays, the dimensions of which correspond to categories by which mortality rates are reported, such as age, sex, country and year. Regression models for such data typically assume…