Correlation
How a credit run affects asset correlation
This paper analyzes how soaring demand in the lending market shortly before a financial crisis can affect one of the main parameters in the internal ratings-based approach: the asset correlation.
Rates correlations break down amid volatility surge
Dealers say go-to hedges are now too risky as old relationships fail
Correlations in operational risk stress testing: use and abuse
The paper presents an analysis of correlation effects of economic factors on the operational risk losses of a medium-large UK retail bank, and it recommends that causal factors that effect operational risk should be identified.
Optimal turnover, liquidity and autocorrelation
A novel optimal execution approach via continuous-time stochastic processes is introduced
As geopolitical risk spikes, a major index gets a revamp
Geovol risk gauge built by Nobel laureate Robert Engle to become Global Covol
Stocks and bonds start to move in step, making quants jittery
Long-established inverse correlation between asset classes breaks down during first quarter
Banks tout CCAR-style stress tests for emergent risks
Extreme-but-plausible scenario planning is being applied to geopolitical events such as Ukraine conflict
Fat-tailed factors
Independent component analysis is proposed as an alternative to principal component analysis
Nonlinear risk decomposition for any type of fund
A risk decomposition by fund manager, factor or instrument is proposed
Making the cut: EU eyes Isda’s carbon trading proposals
EBA fears suggested treatment of emissions would be misaligned with rest of FRTB
Fractional differencing: (in)stability of spectral structure and risk measures of financial networks
This paper studies how correcting for the order of differencing leads to altered filtering and risk computation for inferred networks.
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).
CME targets year-end rollout of new margin model
Clearing house testing new Span 2 framework with members, more work needed with vendors
Factor woes prove need for better timing – QuantZ’s Sharma
Investors should switch between factors as alphas change, says quant
My kingdom for the right copula
Copulas can still deliver if chosen with due attention to intuition and data, says quant fund chair
Ex-SunGard chief Cris Conde’s random walk to fintech and beyond
Technologist talks artificial intelligence, angel investing and accidentally contributing to the Basel framework
Random matrix theory provides a clue to correlation dynamics
A growing field of mathematical research could help us understand correlation fluctuations, says quant expert
Autocalamity: can hit product be reinvented?
Spreads on ‘worst-of’ bonds leap 50% as some dealers retreat and others pile on hedges
Ratings can still sharpen credit risk picture
Study shows even the most modern default models benefit from adding credit rating information
Time to move on from mean-variance diversification
A new diversification measure appears to produce better results than mean-variance optimisation
Equally diversified or equally weighted?
New diversification measure enables construction of equally diversified portfolios
Vol decay and correlation flips: CFM’s take on the Covid crisis
Market bounce-back blindsided quant investment firm – and others
CVA desks arm themselves for the next crisis
March’s volatility forces dealers to fine-tune hedging strategies