Technical paper

Managing diversification

Attilio Meucci introduces a diversification index that represents the effective number of bets in a portfolio. With this index, based on entropy and constrained principal component analysis, he performs mean-diversification management adjusted for…

Hedge fund reporting challenged

Investors in hedge funds are naturally interested in knowing how hedge fund managers allocate their initial investment and whether this allocation yields positive returns or not. Information on past investment returns is of particular interest, as is…

Error of VAR by overlapping intervals

When overlapping intervals in time series are used, volatility and price changes' percentiles are underestimated. Consequently, value-at-risk is also underestimated. Heng Sun, Izzy Nelken, Guowen Han and Jiping Guo measure the size of this underestimation

Factor models for credit correlation

Stewart Inglis, Alex Lipton and Artur Sepp present an extension of the static factor model for pricing credit correlation products introduced by Lipton (2006) and detailed in Inglis & Lipton (2007)

Accelerated ensemble Monte Carlo simulation

Traditional vanilla methods of Monte Carlo simulation can be extremely time-consuming if accurate estimation of the loss distribution is required. Kevin Thompson and Alistair McLeod show that the ensemble Monte Carlo method, introduced here,…