Portfolio Risk Analysis

By: Gregory Connor, Lisa R. Goldberg, Robert A. Korajczyk

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Hardcover | 4 April 2010

At a Glance

Hardcover
400 Pages

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23.4 x 15.2 x 235

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Portfolio risk forecasting has been and continues to be an active research field for both academics and practitioners. Almost all institutional investment management firms use quantitative models for their portfolio forecasting, and researchers have explored models' econometric foundations, relative performance, and implications for capital market behavior and asset pricing equilibrium. "Portfolio Risk Analysis" provides an insightful and thorough overview of financial risk modeling, with an emphasis on practical applications, empirical reality, and historical perspective.

Beginning with mean-variance analysis and the capital asset pricing model, the authors give a comprehensive and detailed account of factor models, which are the key to successful risk analysis in every economic climate. Topics range from the relative merits of fundamental, statistical, and macroeconomic models, to GARCH and other time series models, to the properties of the VIX volatility index. The book covers both mainstream and alternative asset classes, and includes in-depth treatments of model integration and evaluation. Credit and liquidity risk and the uncertainty of extreme events are examined in an intuitive and rigorous way. An extensive literature review accompanies each topic. The authors complement basic modeling techniques with references to applications, empirical studies, and advanced mathematical texts.

This book is essential for financial practitioners, researchers, scholars, and students who want to understand the nature of financial markets or work toward improving them.

Industry Reviews

"Thorough and well-cited, this is a comprehensive treatment of techniques for portfolio risk management. It provides a unique perspective, from the fundamentals to practical applications. There are few books that cover this material in this particular way."-Christopher L. Culp, author of Structured Finance and Insurance
"The range of topics is wide and the coverage is deep. An impressive book."-Peter Christoffersen, McGill University
"The conceptual framework of this book is presented in a lucid and clear manner. The treatment is mathematically rigorous where it matters, without ever becoming pedantic and without cutting corners."-Riccardo Rebonato, Royal Bank of Scotland
"This book takes major steps forward in the crucially important area of portfolio risk measurement, making significant strides toward incorporating industry and country risk, as well as macroeconomic, FX, credit, transactions cost, and liquidity risks. It will be an essential reference text for academics, central bankers, and others in the financial services industry."-Francis X. Diebold, University of Pennsylvania

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You Can Find This Book In

Non-Fiction Business & Management Management & Management Techniques Management Decision Making Accounting & Finance Finance Investment & Securities Economics Macroeconomics Monetary Economics Economic Forecasting Insurance & Actuarial Studies

Econometrics Reference, Information & Interdisciplinary Subjects Research & Information Decision Theory Risk Assessment

Acknowledgments	p. xi
Introduction	p. xiii
Key Notation	p. xix
Measures of Risk and Return	p. 1
Measuring Return	p. 1
The Key Portfolio Risk Measures	p. 6
Risk-Return Preferences and Portfolio Optimization	p. 12
The Capital Asset Pricing Model and Its Applications to Risk Analysi	p. 23
The Objectives and Limitations of Portfolio Risk Analysis	p. 31
Unstructured Covariance Matrices	p. 36
Estimating Return Covariance Matrices	p. 36
The Error-Maximization Problem	p. 47
Portfolio Choice as Decision Making under Uncertainty	p. 54
Industry and Country Risk	p. 61
Industry-Country Component Models	p. 61
Empirical Evidence on the Relative Magnitudes of Country and Industry Risks	p. 73
Sector-Currency Models of Corporate Bond Returns	p. 77
Statistical Factor Analysis	p. 79
Types of Factor Models	p. 79
Approximate Factor Models	p. 82
The Arbitrage Pricing Theory	p. 86
Small-n Estimation Methods	p. 88
Large-n Estimation Methods	p. 93
Number of Factors	p. 98
The Macroeconomy and Portfolio Risk	p. 101
Estimating Macroeconomic Factor Models	p. 101
Event Studies of Macroeconomic Announcements	p. 110
Macroeconomic Policy Endogeneity	p. 112
Business Cycle Betas	p. 115
Empirical Fit and the Relative Value of Macroeconomic Factor Models	p. 116
Equity and Fixed-Income Characteristics	p. 117
Characteristic-Based Factor Models of Equities	p. 122
The Fama-French Model and Extensions	p. 130
The Semiparametric Approach to Characteristic-Based Factor Models	p. 132
Measuring and Hedging Foreign Exchange Risk	p. 134
Definitions of Foreign Exchange Risk	p. 134
Optimal Currency Hedging	p. 142
Currency Covariances with Stock and Bond Returns	p. 149
Macroeconomic Influences on Currency Returns	p. 151
Integrated Risk Models	p. 155
Global and Regional Integration Trends	p. 115
Risk Integration across Asset Classes	p. 158
Segmented Asset Allocation and Security Selection	p. 159
Integrated Risk Models	p. 162
Dynamic Volatilities and Correlations	p. 167
GARCH Models	p. 167
Stochastic Volatility Models	p. 178
Time Aggregation	p. 180
Downside Correlation	p. 181
Option-Implied Volatility	p. 184
The Volatility Term Structure at Long Horizons	p. 187
Time-Varying Cross-Sectional Dispersion	p. 188
Portfolio Return Distributions	p. 191
Characterizing Return Distributions	p. 191
Estimating Return Distributions	p. 196
Tail Risk	p. 203
Nonlinear Dependence between Asset Return	p. 207
Agency Ratings and Factor Models of Spread Risk	p. 213
Rating Transitions and Default	p. 217
Credit Instrumentn	p. 218
Conceptual Approaches to Credit Risk	p. 220
Recovery at Default	p. 232
Portfolio Credit Models	p. 232
The 2007-8 Credit-Liquidity Crisis	p. 238
Some Basic Terminology	p. 241
Measuring Transactions Cost	p. 246
Statistical Properties of Liquidity	p. 261
Optimal Trading Strategies and Transaction Costs	p. 266
Nonsynchronours Pricing and Smoothed Returns	p. 271
Time-Varying Risk, Nonlinear Payoff, and Style Drift	p. 284
Selection and Survivorship Biases	p. 291
Collectibles: Measuring Return and Risk with Infrequent and Error-Prone Observations	p. 295
Summary	p. 298
Return-Based Performance Measurement	p. 299
Holdings-Based Performance Measurement and Attribution	p. 303
Volatility Forecast Evaluation	p. 309
Value-at-Risk Hit Rates	p. 316
Forecast and Realized Return Densities	p. 317
Some Key Messages	p. 319
Question for Future Research	p. 320
References	p. 323
Index	p. 345
Table of Contents provided by Ingram. All Rights Reserved.

Portfolio Risk Analysis

At a Glance

Hardcover

Industry Reviews

Shipping

How to return your order

Defective items

You Can Find This Book In

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