Idiosyncratic risk
Correlated idiosyncratic volatility shocks
To capture the commonality in idiosyncratic volatility, the authors propose a novel multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model called dynamic factor correlation (DFC).
Covid-19 tumult prompts rethink of buy-side risk management
Buy-side risk survey: investment firms making changes to their risk reports, stress tests and concentration limits
Pimco’s Mariappa on iterating through the Covid-19 crisis
Buy-side risk survey: bond giant’s risk head is paying closer attention to idiosyncratic risks
Sandbar's focus on idiosyncratic factors sets it apart from its peers in equity market‑neutral
With investors sometimes struggling to find hedge funds that deliver uncorrelated, consistent returns, Sandbar Asset Management stands out from its peers. Its success in running an equity market-neutral strategy is a reflection of its founder and chief…
Best CVA practices in Japan
At a recent roundtable in Tokyo, banks and regulators discussed progress on credit valuation adjustment (CVA). While, in many respects, the work towards implementing best practices in the country is on track, challenges remain in resourcing and…
One size does not fit all – Adapting to meet investment goals
Guillaume Arnaud, global head of quantitative investment strategies (QIS), and Sandrine Ungari, head of cross-asset quantitative research at Societe Generale, explore the benefits of QIS for investors, why flexibility is crucial for investors to meet…
Podcast: Ronn on using a financial-economics approach to forecast crude oil spot prices
Professor of finance talks about using equity, index and crude oil options to forecast spot prices
MUFG launches CDS franchise in US with bet on volatility
Clearing helps Japanese bank branch out into US single names
Regulatory costs break risk neutrality
Regulations impose idiosyncratic capital and funding costs for holding derivatives. Idiosyncratic costs mean that no single measure makes derivatives martingales for all market participants. Chris Kenyon and Andrew Green demonstrate that regulatory…
An analytical framework for credit portfolio risk measures
An analytical framework for credit portfolio risk measures
Factors on demand
Linear factor models are commonly used by portfolio managers to capture sources of risk, traditionally split between systematic and idiosyncratic types. By using the conditional link between flexible bottom-up estimation, and top-down attribution, factor…
Factors on demand
Attilio Meucci introduces a multi-asset-class return decomposition framework that extends beyond the standard systematic-plus-idiosyncratic approach. This framework, which rests on the conditional link between flexible bottom-up estimation factor models…
Overcoming the hurdle
How should capital be allocated to different business lines in a financial institution? Thomas Wilson explores this question from an investor’s perspective by constructing a statistical model that measures the risk of individual business types. The…