Correlation
Concern over sluggish adoption of ESG futures
While the number of products is on the rise, very few have underlying liquidity
Keep risk parity simple, stupid
In times of volatility, simpler risk parity strategies may outperform more elaborate counterparts
Talking Heads 2022: Rates market ruckus
Inaugural interview series looks at how sell-side traders are adapting to a world of surging inflation and rates
No link between geopolitical risk signals and returns – hedge fund
Gauges of geopolitical risk are better at predicting volatility than equity returns, research from XAI finds
Data-driven wrong-way risk
A calculation method for regulatory CVA wrong-way risk based on credit and exposure is introduced
Barclays confronts ‘implausible’ macro risks
Talking Heads 2022: Bank is reaping rewards of sticking with its trading businesses, says macro head Lublinsky
How Citi is handling topsy-turvy rates markets
Talking Heads 2022: Rate hikes and inflation have forced a rethink of the US bank’s hedging strategies
Using correlation to model op risk losses may be unsafe – study
Techniques for linking economic factors and bank losses produce varying – and sometimes contradictory – results
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