SPECIAL: Risk Management
Bayesian Risk Forecasting
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely,...
Signaling systemic risk
Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...
How to estimate risk in extreme market situations
Estimating portfolio risk in extreme situations means answering two questions: First, has the market entered an extreme state? Second, how are returns likely to...
Drawdown control
Containment of drawdowns and optimization of performance ratios for multi-asset portfolios is critical for trading strategies. Alas, short data series or structural changes often...
Paper uses "set of Machine Learning techniques...Gradient Descent Boosting, Random Forest, Support Vector Machine and Artificial Neural Network...Algorithms are stacked to predict S&P volatility...leading to a more accurate assessment of the market risk." https://t.co/YRx711fUkn https://t.co/GRYFMXbRkr
"Nowcasting [uses] dynamic factor models, which relate a set of indicators to a single underlying factor...We assess performance of a leading small-data nowcast...designed to track business conditions at high frequency...released in real time since 2008." https://t.co/tNJQ6hv6bu https://t.co/YQX8RZC8gT
Trend filtering of market prices with Python: "Smooth time series by filtering out ‘noise’...[with] a trade-off between two objectives...[1] to minimise the residual between actual and smooth series...[2] to maximise the smoothness of the filtered series." https://t.co/P6pA1ZKreS https://t.co/GL62bXhGTa
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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information leverage liquidity market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium volatility ZLB
SYSTEMIC RISK
Modern financial system risk for macro trading
Financial system risk is the main constraint and disruptor of macro trading strategies. There are...
Public finance risk
Fiscal expansion was the logical response to the 2020 health and economic crisis. Alas, public...
Systemic risk under non-conventional monetary policy
Central bank operations in the form of quantitative easing, qualitative easing, forward guidance and collateral...
Risk management shocks and price distortions
Risk management relies on statistical metrics that converge on common standards. These metrics can change...
Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for...
SYSTEMATIC VALUE
External imbalances and FX returns
Hedge ratios of international investment positions have increased over past decades, spurred by regulation and...
Predicting volatility with heterogeneous autoregressive models
Heterogeneous autoregressive models of realized volatility have become a popular standard in financial market research....
Joint predictability of FX and bond returns
When macroeconomic conditions change rational inattention and cognitive frictions plausibly prevent markets from adjusting expectations...
The predictive power score
The predictive power score is a summary metric for predictive relations between data series. Like...
Equilibrium theory of Treasury yields
An equilibrium model for U.S. Treasury yields explains how macroeconomic trends and related expectations for...
POPULAR POSTS
Understanding dollar cross-currency basis
Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are...
VIX term structure as a trading signal
The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...
Understanding the correlation of equity and bond returns
The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....
The dangerous disregard for fat tails in quantitative finance
The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme...
Leverage in asset management
Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...
Basic theory of momentum strategies
Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series momentum motivates trend following; cross section momentum gives rise...