Avoid downturn vulnerability by managing correlation dependency
Asymmetric Dependence in Finance examines the risks and benefits of asset correlation, and provides effective strategies for more profitable portfolio management. Beginning with a thorough explanation of the extent and nature of asymmetric dependence in the financial markets, this book delves into the practical measures fund managers and investors can implement to boost fund performance. From managing asymmetric dependence using Copulas, to mitigating asymmetric dependence risk in real estate, credit and CTA markets, the discussion presents a coherent survey of the state-of-the-art tools available for measuring and managing this difficult but critical issue.
Many funds suffered significant losses during recent downturns, despite having a seemingly well-diversified portfolio. Empirical evidence shows that the relation between assets is much richer than previously thought, and correlation between returns is dependent on the state of the market; this book explains this asymmetric dependence and provides authoritative guidance on mitigating the risks.
* Examine an options-based approach to limiting your portfolio's downside risk
* Manage asymmetric dependence in larger portfolios and alternate asset classes
* Get up to speed on alternative portfolio performance management methods
* Improve fund performance by applying appropriate models and quantitative techniques
Correlations between assets increase markedly during market downturns, leading to diversification failure at the very moment it is needed most. The 2008 Global Financial Crisis and the 2006 hedge-fund crisis provide vivid examples, and many investors still bear the scars of heavy losses from their well-managed, well-diversified portfolios. Asymmetric Dependence in Finance shows you what went wrong, and how it can be corrected and managed before the next big threat using the latest methods and models from leading research in quantitative finance.
Auflage
Sprache
Verlagsort
Dateigröße
ISBN-13
978-1-119-28900-5 (9781119289005)
Schweitzer Klassifikation
1 - Cover???????????????????????? [Seite 1]
2 - Title Page?????????????????????????????????? [Seite 5]
3 - Copyright???????????????????????????????? [Seite 6]
4 - Contents?????????????????????????????? [Seite 9]
5 - About the Editors [Seite 11]
6 - Introduction [Seite 13]
7 - Chapter 1: Disappointment Aversion, Asset Pricing and Measuring Asymmetric Dependence???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 17]
7.1 - 1.1 Introduction?????????????????????????????????????????????? [Seite 17]
7.2 - 1.2 From Skiadas Preferences to Asset Prices?????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 21]
7.3 - 1.3 Consistently Measuring Asymmetric Dependence?????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 23]
7.3.1 - 1.3.1 The Adjusted J Statistic?????????????????????????????????????????????????????????????????????????? [Seite 24]
7.4 - 1.4 Summary???????????????????????????????????? [Seite 28]
7.5 - References?????????????????????????????????? [Seite 29]
7.6 - Further Reading???????????????????????????????????????????? [Seite 30]
8 - Chapter 2: The Size of the CTA Market and the Role of Asymmetric Dependence???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 33]
8.1 - 2.1 Introduction?????????????????????????????????????????????? [Seite 33]
8.2 - 2.2 Market Model?????????????????????????????????????????????? [Seite 35]
8.2.1 - 2.2.1 Equilibrium Prices and Portfolios???????????????????????????????????????????????????????????????????????????????????????????? [Seite 35]
8.3 - 2.3 Computation of Moments?????????????????????????????????????????????????????????????????? [Seite 36]
8.3.1 - 2.3.1 Option and Stock?????????????????????????????????????????????????????????? [Seite 36]
8.3.2 - 2.3.2 Comparison with Black-Scholes Delta [Seite 38]
8.3.3 - 2.3.3 The Sign of ??????21 [Seite 39]
8.4 - 2.4 Example Distributions???????????????????????????????????????????????????????????????? [Seite 40]
8.4.1 - 2.4.1 Uniform Prices?????????????????????????????????????????????????????? [Seite 41]
8.4.2 - 2.4.2 Symmetric Distributions with k = ?????? [Seite 43]
8.4.3 - 2.4.3 Normal Distribution???????????????????????????????????????????????????????????????? [Seite 44]
8.4.4 - 2.4.4 Scale Gamma???????????????????????????????????????????????? [Seite 47]
8.4.5 - 2.4.5 Pareto?????????????????????????????????????? [Seite 48]
8.5 - 2.5 Heterogeneity and CTA Market Size???????????????????????????????????????????????????????????????????????????????????????? [Seite 53]
8.5.1 - 2.5.1 Institutional Demands???????????????????????????????????????????????????????????????????? [Seite 53]
8.5.2 - 2.5.2 Size of the Option Market???????????????????????????????????????????????????????????????????????????? [Seite 56]
8.6 - 2.6 Empirical Examples?????????????????????????????????????????????????????????? [Seite 59]
8.7 - 2.7 Conclusions???????????????????????????????????????????? [Seite 61]
8.8 - References?????????????????????????????????? [Seite 61]
9 - Chapter 3: The Price of Asymmetric Dependence???????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 63]
9.1 - 3.1 Introduction?????????????????????????????????????????????? [Seite 63]
9.2 - 3.2 The Asymmetric Dependence Risk Premium?????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 65]
9.2.1 - 3.2.1 Empirical Design?????????????????????????????????????????????????????????? [Seite 65]
9.2.2 - 3.2.2 Data?????????????????????????????????? [Seite 66]
9.2.3 - 3.2.3 Factor Correlations???????????????????????????????????????????????????????????????? [Seite 68]
9.2.4 - 3.2.4 Distribution of JAdj [Seite 69]
9.2.5 - 3.2.5 Conditional Dependence Patterns???????????????????????????????????????????????????????????????????????????????????????? [Seite 70]
9.2.6 - 3.2.6 In-Sample Regression Results?????????????????????????????????????????????????????????????????????????????????? [Seite 70]
9.2.7 - 3.2.7 Out-of-Sample Regressions???????????????????????????????????????????????????????????????????????????? [Seite 78]
9.2.8 - 3.2.8 Time-Varying Risk???????????????????????????????????????????????????????????? [Seite 79]
9.3 - 3.3 Conclusion?????????????????????????????????????????? [Seite 86]
9.4 - References?????????????????????????????????? [Seite 87]
9.5 - Further Reading???????????????????????????????????????????? [Seite 88]
10 - Chapter 4: Misspecification in an Asymmetrically Dependent World: Implications for Volatility Forecasting???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 91]
10.1 - 4.1 Introduction?????????????????????????????????????????????? [Seite 91]
10.2 - 4.2 Literature Survey???????????????????????????????????????????????????????? [Seite 92]
10.3 - 4.3 Model Specifications?????????????????????????????????????????????????????????????? [Seite 95]
10.3.1 - 4.3.1 Existence of Moments?????????????????????????????????????????????????????????????????? [Seite 97]
10.4 - 4.4 Estimating 'True' Parameter Values [Seite 99]
10.4.1 - 4.4.1 US Equity Returns???????????????????????????????????????????????????????????? [Seite 99]
10.4.2 - 4.4.2 US 10yr Bond Returns?????????????????????????????????????????????????????????????????? [Seite 103]
10.5 - 4.5 Evaluating Forecasting Performance?????????????????????????????????????????????????????????????????????????????????????????? [Seite 106]
10.6 - 4.6 Simulation Method and Results???????????????????????????????????????????????????????????????????????????????? [Seite 107]
10.6.1 - 4.6.1 Results???????????????????????????????????????? [Seite 107]
10.7 - 4.7 Conclusion?????????????????????????????????????????? [Seite 113]
10.8 - References?????????????????????????????????? [Seite 113]
10.9 - Appendix 4.A Additional Details Regarding Underlying Data Sources Used by Global Financial Data and Bloomberg [Seite 116]
10.10 - Appendix 4.B Proof of Theorem 4.1 [Seite 117]
10.11 - Appendix 4.C Proof of Corollaries 4.1 and 4.2 [Seite 119]
11 - Chapter 5: Hedging Asymmetric Dependence?????????????????????????????????????????????????????????????????????????????????????????????? [Seite 126]
11.1 - 5.1 Introduction?????????????????????????????????????????????? [Seite 126]
11.2 - 5.2 Asymmetric Dependence in Implied Equity Correlation: The Implied Correlation Skew???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 127]
11.3 - 5.3 The Effect of Correlation Skew on Portfolio Choice?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 130]
11.3.1 - 5.3.1 The Optimal Portfolio Incorporating Stochastic Correlation?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 130]
11.3.2 - 5.3.2 Characteristics and Model Intuition???????????????????????????????????????????????????????????????????????????????????????????????? [Seite 131]
11.3.3 - 5.3.3 Empirical Observations?????????????????????????????????????????????????????????????????????? [Seite 132]
11.4 - 5.4 Equity Correlation Products???????????????????????????????????????????????????????????????????????????? [Seite 132]
11.4.1 - 5.4.1 Dispersion?????????????????????????????????????????????? [Seite 132]
11.4.2 - 5.4.2 Correlation Swaps???????????????????????????????????????????????????????????? [Seite 137]
11.4.3 - 5.4.3 Worst-Of Options?????????????????????????????????????????????????????????? [Seite 137]
11.4.4 - 5.4.4 Basket Options?????????????????????????????????????????????????????? [Seite 138]
11.4.5 - 5.4.5 Derivative Strategies to Hedge AD???????????????????????????????????????????????????????????????????????????????????????????? [Seite 138]
11.5 - 5.5 Models for Correlation Skew???????????????????????????????????????????????????????????????????????????? [Seite 140]
11.5.1 - 5.5.1 Instantaneous Correlation Models?????????????????????????????????????????????????????????????????????????????????????????? [Seite 140]
11.5.2 - 5.5.2 Local Correlation Modelling???????????????????????????????????????????????????????????????????????????????? [Seite 141]
11.5.3 - 5.5.3 Copula Models???????????????????????????????????????????????????? [Seite 143]
11.6 - References?????????????????????????????????? [Seite 147]
12 - Chapter 6: Orthant Probability-Based Correlation?????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 149]
12.1 - 6.1 Introduction?????????????????????????????????????????????? [Seite 149]
12.2 - 6.2 Orthant Probabilities and Orthant Correlation???????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 150]
12.3 - 6.3 Orthant Probability Testing???????????????????????????????????????????????????????????????????????????? [Seite 151]
12.4 - 6.4 Characteristics of Orthant Correlations???????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 152]
12.5 - 6.5 In the Presence of Skewness and Kurtosis?????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 155]
12.6 - 6.6 Quantifying the Complementarity of Asset Characteristics?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 157]
12.7 - 6.7 Conclusions???????????????????????????????????????????? [Seite 162]
12.8 - References?????????????????????????????????? [Seite 163]
12.9 - Appendix 6.A Proof of Application of Sheppard's Theorem to the Bivariate Elliptical [Seite 164]
12.9.1 - 6.A.1 Extensions [Seite 166]
13 - Chapter 7: Risk Measures Based on Multivariate Skew Normal and Skew t-Mixture Models?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 168]
13.1 - 7.1 Introduction?????????????????????????????????????????????? [Seite 168]
13.2 - 7.2 Finite Mixture of Skew Distributions?????????????????????????????????????????????????????????????????????????????????????????????? [Seite 169]
13.3 - 7.3 Linear Transformation of Skew Normal and Skew t-Mixtures?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 171]
13.4 - 7.4 Risk Measures???????????????????????????????????????????????? [Seite 173]
13.4.1 - 7.4.1 Risk Measures Based on Skew Mixture Models?????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 174]
13.4.2 - 7.4.2 Skew Normal Mixture Models?????????????????????????????????????????????????????????????????????????????? [Seite 174]
13.4.3 - 7.4.3 Skew t-Mixture Models???????????????????????????????????????????????????????????????????? [Seite 175]
13.5 - 7.5 Application to an Australian Portfolio?????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 176]
13.5.1 - 7.5.1 The Data Set?????????????????????????????????????????????????? [Seite 176]
13.5.2 - 7.5.2 Evaluation of Risk Measures???????????????????????????????????????????????????????????????????????????????? [Seite 176]
13.5.3 - 7.5.3 Performance of the Fitted Models?????????????????????????????????????????????????????????????????????????????????????????? [Seite 179]
13.6 - 7.6 Summary and Conclusions???????????????????????????????????????????????????????????????????? [Seite 182]
13.7 - References?????????????????????????????????? [Seite 183]
14 - Chapter 8: Estimating Asymmetric Dynamic Distributions in High Dimensions???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 185]
14.1 - 8.1 Introduction?????????????????????????????????????????????? [Seite 185]
14.2 - 8.2 Sequential Procedure?????????????????????????????????????????????????????????????? [Seite 187]
14.3 - 8.3 Theoretical Motivation?????????????????????????????????????????????????????????????????? [Seite 189]
14.3.1 - 8.3.1 Composite Pseudo-likelihood and Model Averaging???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 189]
14.3.2 - 8.3.2 Asymptotics???????????????????????????????????????????????? [Seite 191]
14.4 - 8.4 Parameterizations???????????????????????????????????????????????????????? [Seite 193]
14.4.1 - 8.4.1 Univariate Distributions?????????????????????????????????????????????????????????????????????????? [Seite 193]
14.4.2 - 8.4.2 Bivariate Copulas???????????????????????????????????????????????????????????? [Seite 194]
14.4.3 - 8.4.3 Compounding Functions???????????????????????????????????????????????????????????????????? [Seite 196]
14.4.4 - 8.4.4 Goodness-of-Fit Testing???????????????????????????????????????????????????????????????????????? [Seite 196]
14.5 - 8.5 Empirical Application???????????????????????????????????????????????????????????????? [Seite 197]
14.5.1 - 8.5.1 Data?????????????????????????????????? [Seite 197]
14.5.2 - 8.5.2 Estimates of Univariate Distributions???????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 200]
14.5.3 - 8.5.3 Estimates of Pairwise Copulas???????????????????????????????????????????????????????????????????????????????????? [Seite 202]
14.5.4 - 8.5.4 Estimates of Compounding Functions?????????????????????????????????????????????????????????????????????????????????????????????? [Seite 204]
14.5.5 - 8.5.5 Comparison with the Conventional Copula Approach?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 207]
14.6 - 8.6 Concluding Remarks?????????????????????????????????????????????????????????? [Seite 208]
14.7 - References?????????????????????????????????? [Seite 209]
14.8 - Appendix 8.A [Seite 212]
15 - Chapter 9: Asymmetric Dependence, Persistence and Firm-Level Stock Return Predictability?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 214]
15.1 - 9.1 Predictive Power of Asymmetric Dependence???????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 215]
15.1.1 - 9.1.1 Data and Method???????????????????????????????????????????????????????? [Seite 216]
15.1.2 - 9.1.2 US Equities???????????????????????????????????????????????? [Seite 217]
15.1.3 - 9.1.3 US REITs?????????????????????????????????????????? [Seite 219]
15.1.4 - 9.1.4 AUS Equities?????????????????????????????????????????????????? [Seite 222]
15.1.5 - 9.1.5 UK Equities???????????????????????????????????????????????? [Seite 222]
15.2 - 9.2 Persistence of Asymmetric Dependence?????????????????????????????????????????????????????????????????????????????????????????????? [Seite 225]
15.2.1 - 9.2.1 Data and Method???????????????????????????????????????????????????????? [Seite 226]
15.2.2 - 9.2.2 Serial Autocorrelation of the JAdj Statistic?????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 227]
15.2.3 - 9.2.3 Migration Probabilities: Lower-Tail and Upper-Tail Asymmetric Dependence?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 227]
15.3 - 9.3 Spillover Effects???????????????????????????????????????????????????????? [Seite 230]
15.4 - 9.4 Conclusion?????????????????????????????????????????? [Seite 234]
15.5 - References?????????????????????????????????? [Seite 234]
16 - Chapter 10: The Most Entropic Canonical Copula with an Application to 'Style' Investment [Seite 237]
16.1 - 10.1 Introduction???????????????????????????????????????????????? [Seite 237]
16.2 - 10.2 Maximum Entropy and Copulas?????????????????????????????????????????????????????????????????????????????? [Seite 241]
16.3 - 10.3 Proposed Method?????????????????????????????????????????????????????? [Seite 243]
16.3.1 - 10.3.1 The Most Entropic Copula as a Bivariate Distribution with Uniform[0,1] Marginals???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 243]
16.3.2 - 10.3.2 Large Sample Properties of the Most Entropic Canonical Copula?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 248]
16.4 - 10.4 Simulation???????????????????????????????????????????? [Seite 249]
16.5 - 10.5 Application to Asset Allocation?????????????????????????????????????????????????????????????????????????????????????? [Seite 250]
16.5.1 - 10.5.1 Analysis of Alternative Models???????????????????????????????????????????????????????????????????????????????????????? [Seite 253]
16.5.2 - 10.5.2 Relative Performance of Investment Models?????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 258]
16.6 - 10.6 Conclusion???????????????????????????????????????????? [Seite 265]
16.7 - References?????????????????????????????????? [Seite 266]
16.8 - Appendix 10.A Basic Results [Seite 269]
16.9 - Appendix 10.B Approximation of Potential Functions [Seite 270]
16.10 - Appendix 10.C Proofs [Seite 272]
16.11 - Appendix 10.D Estimation of the Dynamic MECC Model [Seite 277]
17 - Chapter 11: Canonical Vine Copulas in the Context of Modern Portfolio Management: Are They Worth It??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 279]
17.1 - 11.1 Introduction???????????????????????????????????????????????? [Seite 279]
17.2 - 11.2 Data???????????????????????????????? [Seite 281]
17.3 - 11.3 Research Method?????????????????????????????????????????????????????? [Seite 283]
17.3.1 - 11.3.1 Multivariate Probability Modelling???????????????????????????????????????????????????????????????????????????????????????????????? [Seite 284]
17.3.2 - 11.3.2 Optimization of the Investor's Utility Function?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 289]
17.4 - 11.4 Results?????????????????????????????????????? [Seite 289]
17.4.1 - 11.4.1 Efficient Frontiers, E (R) vs. CVaR?????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 289]
17.4.2 - 11.4.2 Out-of-Sample Portfolio Performance?????????????????????????????????????????????????????????????????????????????????????????????????? [Seite 291]
17.5 - 11.5 Conclusion???????????????????????????????????????????? [Seite 303]
17.6 - References?????????????????????????????????? [Seite 304]
18 - Index [Seite 307]
19 - EULA [Seite 313]
