Target Matrix Estimators in Risk-Based Portfolios

Risk-Based Allocation of Principal Portfolios

Risk-based asset allocation strategies are mainly used to diversify nominal asset weights. In this paper, we discuss the diversification of risk factors. The analysis is based on the idea of Partovi and Caputo (2004), who use principal component analysis to transform a portfolio into a set of uncorrelated principal portfolios. Risk-based asset allocation strategies can be applied to these uncor...

Variance-Covariance Based Risk Allocation in Credit Portfolios: Analytical Approximation

High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The accuracy of the approximation as well as its speed are compared to and shown to be superior to those of Monte Carlo simulation.

The impact of covariance misspecification in risk-based portfolios

Capital allocation for credit portfolios with kernel estimators

Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Valueat-Risk (VaR) of the portfolio loss distribution. For many of the credit portfolio risk models used in practice, the VaR contributions then have to be estimated from Monte Carlo samples. In the contex...

Optimal Portfolios with End-of-Period Target

We study the estimation of optimal portfolios for a Reserve Fund with an endof-period target, and when the returns of the assets that constitute the Reserve Fund portfolio follow two specifications. In the first one assets are split into short memory (bonds) and long memory (equity), and the optimality of the portfolio is based on maximizing the Sharpe ratio. In the second returns follow a cond...