Curse of dimensionality part 3: Higher-Order Comoments
Higher moments such as Skewness and Kurtosis are not as explored as they should be. These moments are crucial for managing portfolio risk. At least as important as volatility, if not more. Skewness...
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Create own Recession Indicator using Mixture Models
Context Broadly speaking, we can classify financial markets conditions into two categories: Bull and Bear. The first is a “todo bien” market, tranquil and generally upward sloping. The second describes...
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Portfolio Construction Tilting towards Higher Moments
When you build your portfolio you must decide what is your risk profile. A pension fund’s risk profile is different than that of a hedge fund, which is different than that of a family office....
View ArticleA New Parameterization of Correlation Matrices
In volatility modelling, a typical challenge is to keep the covariance matrix estimate valid, meaning (1) symmetric and (2) positive semi definite*. A new paper published in Econometrica (citing from...
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Correlation and Correlation Structure (6) – Distance Correlation
While linear correlation (aka Pearson correlation) is by far the most common type of dependence measure there are few arguably better ways to characterize\estimate the degree of dependence between...
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