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9
votes
0answers
359 views

performance of historical VaR parameters

An historical VaR measure is parameterized in terms of the confidence level and also number of periods. Specifically, the $\alpha$% T-period VaR is defined as the portfolio loss x in market value over ...
10
votes
1answer
364 views

What weights should be used when adjusting a correlation matrix to be positive definite?

I have a correlation matrix $A$ for an equity market that is not positive definite. Higham (2002) proposes the Alternating Projections Method, minimising the weighted Frobenius norm $||A-X||_W$ where ...
8
votes
1answer
496 views

Has any research used Bayesian networks to estimate risk factor betas?

Is there any published research on estimating the beta of a security with respect to one or more risk factors via Bayesian networks? I'd like to see if this is a promising angle of research.
4
votes
2answers
425 views

Choice of prior as a shrinkage target in portfolio construction?

There's various research showing how priors such as the minimum variance portfolio turn out to be a surprisingly effective shrinkage target in portfolio construction. The sell point of these priors ...
11
votes
2answers
873 views

When should you build your own equity risk model?

Commercial risk models (e.g., Barra, Axioma, Barclays, Northfield) have evolved to a very high level of sophistication. However, all of these models attempt to solve a very broad set of problems. ...
16
votes
2answers
629 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 ...
3
votes
1answer
411 views

What research exists regarding implementation of reverse stress testing?

I need to implement a reverse stress testing model (definition here) I have searched around and cannot find anything substantial on the topic. Does anyone know of any good papers/references ...
7
votes
2answers
2k views

Cluster analysis vs PCA for risk models?

I built risk models using cluster analysis in a previous life. Years ago I learned about principal component analysis and I've often wondered whether that would have been more appropriate. What are ...