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Session 22. Multivariate stochastic modelling in finance, insurance and risk management
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TEDAS - Tail Event Driven Asset Allocation |
Wolfgang Karl Härdle, Humboldt-Universität zu Berlin, Germany
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The talk is based on the joint work with Sergey Nasekin, David Lee and Phoon Kok Fai
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Portfolio selection and risk management is one of very actively studied topics
in quantitative finance and applied statistics. It is closely related to the
dependency structure of portfolio assets or risk factors. The correlation structure
across assets and opposite tail movements is a main component of the asset
allocation problem, since it determines the level of risk in a position. Correlation
alone is not informative on the distributional details of the asset components. By
introducing TEDAS -Tail Event Driven Asset allocation, one studies the dependence
between assets at different quantiles. In a hedging exercise, TEDAS uses
adaptive Lasso based quantile regression in order to determine an active set of
negative non-zero coefficients. Based on these active risk factors, an adjustment
for intertemporal correlation is made. Finally, the asset allocation weights are
determined via a Cornish-Fisher Value-at-Risk optimization. TEDAS is studied
in simulation and a practical example using hedge fund indices.
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