Portfolio construction and systematic trading with factor entropy pooling

Portfolio construction and systematic trading with factor entropy pooling

Processing trading signals or views on the market to compute an optimal allocation is one of the main challenges in quantitative portfolio construction. Similarly, embedding stress tests in a risk model in a statistically sound way is key to a healthy risk management process. The generalised Bayesian approach known as entropy pooling, which is laid out in full generality in Meucci (2008), is a flexible framework for processing views and embedding generalised stress tests. The inputs to entropy p