Tagged Questions
6
votes
1answer
296 views
What distribution should I apply to estimate the likelihood of extreme returns?
Say I have a limited sample, a month of daily returns, and I want to estimate the 99.5th percentile of the distribution of absolute daily returns.
Because the estimate will require extrapolation, I ...
4
votes
1answer
138 views
Are there any well known methods of testing through-the-cycle rating systems?
Rating systems, as defined by the Basel II Accord, can be classified into two broad types - through-the-cycle (TTC) or point-in-time (PIT) - and the probability of default predicted by such a system ...
7
votes
2answers
843 views
How to apply risk-parity portfolio construction to a dollar-neutral portfolio?
Long-only risk-parity portfolios have proliferated in recent years. An optimized long-only risk-parity portfolio requires that the asset weight * marginal contribution to risk of the asset is ...
3
votes
2answers
10k views
How to calculate unsystematic risk?
We know that there are 2 types of risk which are systematic and unsystematic risk. Systematic risk can be estimate through the calculation of β in CAPM formula. But how can we estimate the ...
5
votes
3answers
99 views
Which lags or percentiles should be run in a batch when calculating Value-at-Risk?
Are there any "standard" VaR calculations run in a batch?
For example, testing a VaR calculation with a lag of 1,2, 5 or 10 days over 2 years?
Same question for the percentile, 1%, 2.5%, 5% etc.
5
votes
1answer
433 views
Value at Risk backtesting (kupiec)
I m doing my research on estimating Value at risk using different assumptions on volatility and then compare my results based on backtesting.
I obtained results and just on question based on my ...
7
votes
4answers
10k views
What are some examples of non-financial risks and contingency plans?
There are many online sources about common risk factors in investing and trading e.g. market risk, credit risk, interest rate risk. There are various factor models (Fama-French, Carhart) and risk ...
16
votes
2answers
463 views
How do macro funds manage risk and model asset returns? Do they use factor models?
Some of the largest funds in the world are entirely macro-based: Soros, Brevan Howard, Bridgewater. They trade across asset classes, and seemingly with very concentrated allocations. What type of risk ...
13
votes
6answers
1k views
How does the “risk-neutral pricing framework” work?
I've struggled for a long time to understand this - What is this? And how does it affect you?
Yes I mean risk neutral pricing - Wilmott Forums was not clear about that.
14
votes
4answers
1k views
How are risk management practices applied to ML/AI-based automated trading systems
A potential issue with automated trading systems, that are based on Machine Learning (ML) and/or Artificial Intelligence (AI), is the difficulty of assessing the risk of a trade. An ML/AI algorithm ...
