Diversification
Diversification is even better than a free lunch – study
Data back to 1926 shows that spreading bets brings higher returns as well as lower risk
Podcast: Jan Rosenzweig on fat tails and LDI portfolios
An optimised portfolio can look very different when extreme moves are given more weight
SocGen’s VAR up 33% in Q4
Gap with French rival BNP Paribas shrinks to just €9 million, the least since mid-2020
Keep risk parity simple, stupid
In times of volatility, simpler risk parity strategies may outperform more elaborate counterparts
Crédit Agricole’s VAR jumps 88% on fixed income blow-up
Trading risk gauge reached the highest since Q2 2020
Exploring the equity–bond relationship in a low-rate environment with unsupervised learning
The authors apply k-means clustering to low interest rate periods in order to analyze the equity hedging property of government bonds.
The risk-reversal premium
We show that including risk reversals in an equity portfolio creates a better portfolio compared with a pure index position.
Stocks and bonds start to move in step, making quants jittery
Long-established inverse correlation between asset classes breaks down during first quarter
EU lawmakers’ demand for local capital floors alarms banks
Multiple output floors applied to each entity raises fears of capital increase for large groups
Nordea’s trading VAR keeps climbing amid rate hike jitters
Trading risk gauge surged 17% through Q4
JP Morgan’s VAR falls to lowest since 2018
Gauge of trading risk drops 20% quarter on quarter, driven by commodities and equity desks
An examination of the tail contribution to distortion risk measures
This paper reports a method for analyzing the influence of the tail in calculations of distortion risk measures.
Correlation diversified passive portfolio strategy based on permutation of assets
This paper proposes a new idea to determine the adjustment weight vector in order to construct a passive portfolio with lower risk than the risk of the benchmark index.
JP Morgan’s fixed income VAR dives 69%
Average trading VAR down 59% over the previous quarter
Random matrix theory provides a clue to correlation dynamics
A growing field of mathematical research could help us understand correlation fluctuations, says quant expert
Bonds fall from favour as shock absorbers for equity losses
Ultra-low rates force investors to rethink role of fixed income as diversifier
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
Sometimes it’s fine to be boring
Diversification puts portfolios in the middle of the pack – where investors feel safe, writes Antonia Lim
Safe havens no longer safe, quants fear
Equity-debt correlation breakdown and negative bond yields make investors nervous
A sea change – Driving awareness to confront climate risk
Amid a global push towards green policies, the reality of overhauling how industries worth trillions of dollars operate is causing concern. A forum of market participants and sponsors of this report discuss the levels of awareness of climate risk and its…
Competitive differentiation – Reaping the benefits of XVA centralisation
A forum of industry leaders discusses the latest developments in XVA and the strategic, operational and technological challenges of derivatives valuation in today’s environment, including the key considerations for banks looking to move to a standardised…
Crash risk exposure, diversification and cost of equity capital: evidence from a natural experiment in China
Based on a broad sample of Chinese listed firms for the period 2001–10, this study investigates the effect of stock price crash risk exposure on the cost of equity capital and uses the split share structure reform as an exogenous shock to test whether…
Stress-testing to improve strategic decision‑making
Banking regulators remain focused on expanding and developing the range of stress-testing regimes across the globe to maintain stability, monitor emerging risks and avoid another financial crisis. Here, a forum of industry leaders discusses the evolution…