The risk-models tag has no wiki summary.
16
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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 ...
11
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1answer
663 views
Cleansing covariance matrices via Random matrix theory
I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
10
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3answers
763 views
Is Conditional Value-at-Risk (CVaR) coherent?
When the risk is defined by a discrete random variable, is CVaR a coherent risk measure? I stick to the following definition of CVaR:
$$ CVaR_\alpha(R) = \min_v \quad \left\{ v + \frac{1}{1-\alpha} ...
10
votes
1answer
209 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 ...
9
votes
1answer
310 views
Models for measuring insurance risk exposure
I've recently begun working as a quant for a large bank, and one of my first tasks will be to improve the model determining the risk exposure of their insurance portfolio. The portfolio is fairly ...
9
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2answers
218 views
Stochastic modelling of derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are common stochastic ...
8
votes
2answers
477 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. ...
8
votes
1answer
306 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.
8
votes
1answer
235 views
Links to the risk model methodologies of the major providers?
There is quite a bit of art in constructing an equity risk model. This paper summarizes some of the key decisions: choice of factors, horizon matching, cross-sectional vs. time-series method, and ...
7
votes
3answers
325 views
Multi Factor Credit Risk Models
I am working in the area of building credit risk models. Upto this point, the model I have been focused on using the Asymptotic Single Factor Model, more popularly known as Vasicek Single Factor ...
7
votes
0answers
193 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 ...
6
votes
2answers
1k 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 ...
6
votes
2answers
1k views
What does it mean to modify the factor loadings of a credit risk model?
I came across an example where a well-known weakness of a credit risk model was dealt with by augmenting some of the existing risk factors via increased factor loadings. This made the the model more ...
4
votes
2answers
325 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 ...
4
votes
1answer
117 views
Quantitative risk model for an open real estate mutual fund in Europe
How useful are quantitative techniques for the risk analysis/management of a open real estate fund?
I am thinking about an approach for Europe (US and other markets are probably quite different - ...
4
votes
1answer
732 views
Performance Attribution : Annualizing alpha & factor return contributions
Let's say I have a factor model which I am using for Performance Attribution. I'd like to separate returns from alpha vs. returns from exposure to various risk factors.
For each date, the factor ...
4
votes
1answer
347 views
Discrete time Ho lee model
This is my first question in this forum. I am stuck with my current testing the Ho Lee model. I am having difficulty computing the perturbation factor $\Delta$.
The ho lee model should be completely ...
4
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0answers
458 views
Help With Quant Modelling Software
Im a software developer (freelance) working in investment banking, and I'm looking to improve my CV by gaining a better understanding of the financial quant role and the software used by quants to ...
3
votes
5answers
845 views
Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?
I need suggestions for some good books on the following topics:
Credit Value Adjustment (CVA) / Credit Risk
Probability of Default / Loss-Given-Default / Exposure-At-Default modeling
Any pointers ...
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 ...
3
votes
1answer
336 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 ...
2
votes
2answers
221 views
Determining portfolio risk return in R given historical data for individual holdings?
Currently we compute portfolio risk and return via our own C# program. Historical data is stored in a SQL database. We want to compute the risk and return parameters - given a portfolio (i.e. not ...
2
votes
1answer
351 views
Modelling VIX Futures for risk management
I would like to model VIX futures. The aim is not pricing but risk management. Thus I want to get risk measures like volatility right and be able to accurately calculate correlations when the VIX ...
2
votes
2answers
107 views
Proxy for risk in portfolio theory when return can take only two values
I'm trying to adapt tools from portfolio theory for another use, and I have a question about how I might do so.
Suppose that instead of having normally distributed returns, the return $R_i$ is ...
2
votes
1answer
314 views
Basel II modelling vs Solvency II modelling?
How do the two modelling frameworks compare? I spent some time developing PD LGD and EAD models for banking portfolios... But I never did insurance modelling project which I suspect is based on ...
2
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0answers
78 views
Benchmarking risk
Given the portfolio return $R$ and the benchmark return $B$, I want to define a risk indicator, measuring the ability to beat the benchmark ($R>B$), given the downside risk taken; the latter not ...
2
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0answers
152 views
Gamma vs. Volatility Risk
Original Question: What is the link between Gamma and the Volatility Risk?
It leads me to ask:
- What is the Volatility Risk definition and what are the good practices to measure it?
Thinking about ...
2
votes
0answers
191 views
Long-term vs short-term strategies \ investing
Suppose most investors have very short investing horizons and use appropriate (for them) strategies, but investor X has a very long horizon. He would like to trade some advantages (early withdrawal ...
2
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0answers
160 views
Is inverted Japanese style curve persistent when negative rates are real / market - observed?
The time evolution of inverted curves does model / forecast a future recession and not necessarily contains the current liquidity- / credit-related aspect. The historical Japanese style inverted yield ...
1
vote
2answers
82 views
Liquidity in a market risk model based on historical simulation
I would like to model liquidity effects in my risk model which is based on historical simulation. I would like to develop a practical solution that still captures liquidity effects.
Most probably I ...
1
vote
2answers
107 views
Reasoning behind multiple names for the equivalent risk measures AVaR/ETL/ES/CVaR
Doe's any one know the history behind, or background of the multiple naming conventions for the equivalent risk functions. Different quant authors prefer using different names, does any one know why? ...
1
vote
0answers
46 views
Risk factors for derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are the main risk ...
0
votes
0answers
42 views
Jumps in the evolution of observed negative interest rates related to changes in credit ratings?
If credit risk is to be considered completed integrated in the market prices (integrated credit and market risk), the change in the credit rate will trigger the change in the interest rate/market ...
0
votes
1answer
57 views
Separated software and physical cash flows modelling and pricing to be used with negative interest rates?
The physical cash presence in the final transactions is one of the issues in the presently observed negative interest rates bonds. Such a situation has historically been modelled within the "liquidity ...
0
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0answers
53 views
Should portfolio be optimized by marking to the future than marking to market (excluding currencies)?
Observing the negative interest bonds in Switzerland, Denmark, GErmany the value of higher presently (credit-free) outgoing cash flows seems less important than the value of lower future (credit-free) ...
