WO2007090106A3 - Identifying and compensating for model mis-specification in factor risk models - Google Patents

Identifying and compensating for model mis-specification in factor risk models Download PDF

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Publication number
WO2007090106A3
WO2007090106A3 PCT/US2007/061266 US2007061266W WO2007090106A3 WO 2007090106 A3 WO2007090106 A3 WO 2007090106A3 US 2007061266 W US2007061266 W US 2007061266W WO 2007090106 A3 WO2007090106 A3 WO 2007090106A3
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WO
WIPO (PCT)
Prior art keywords
risk
factor
factor risk
models
model
Prior art date
Application number
PCT/US2007/061266
Other languages
French (fr)
Other versions
WO2007090106A2 (en
Inventor
Robert A Stubbs
Original Assignee
Axioma Inc
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
Filing date
Publication date
Application filed by Axioma Inc filed Critical Axioma Inc
Priority to EP07710379A priority Critical patent/EP1979871A4/en
Publication of WO2007090106A2 publication Critical patent/WO2007090106A2/en
Publication of WO2007090106A3 publication Critical patent/WO2007090106A3/en

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Classifications

    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/06—Asset management; Financial planning or analysis
    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06F—ELECTRIC DIGITAL DATA PROCESSING
    • G06F17/00—Digital computing or data processing equipment or methods, specially adapted for specific functions
    • G06F17/10—Complex mathematical operations
    • G06F17/16—Matrix or vector computation, e.g. matrix-matrix or matrix-vector multiplication, matrix factorization
    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
    • F—MECHANICAL ENGINEERING; LIGHTING; HEATING; WEAPONS; BLASTING
    • F16—ENGINEERING ELEMENTS AND UNITS; GENERAL MEASURES FOR PRODUCING AND MAINTAINING EFFECTIVE FUNCTIONING OF MACHINES OR INSTALLATIONS; THERMAL INSULATION IN GENERAL
    • F16D—COUPLINGS FOR TRANSMITTING ROTATION; CLUTCHES; BRAKES
    • F16D2500/00—External control of clutches by electric or electronic means
    • F16D2500/70—Details about the implementation of the control system
    • F16D2500/708—Mathematical model

Abstract

Techniques for more accurately estimating the risk, or active risk, of an investment portfolio when using factor risk models are disclosed. This improved accuracy is achieved by identifying and compensating for the inherent 'modeling error' present when risk is represented using a factor risk model. The approach adds one or more factors that depend on the investment portfolio and that explicitly compensate for factors that are unspecified or unattributcd in the original factor risk model. These unspecified factors of the original factor risk model lead to modeling error in the original factor risk model. The approach can be used with a variety of different factor risk models, such as, fundamental, statistical and macro risk models, for example, and for a variety of securities, such as equities, international equities, composites, exchange traded funds (ETFs), or the like, currencies, and Fixed-income, for example. The risk associated with modeling error in a factor risk model relative to a particular portfolio is identified and quantified. Knowledge of this risk associated with modeling error can be utilized when estimating risk, or active risk, using factor risk models or when constructing optimal portfolios by mean-variance optimization or other portfolio construction strategies and procedures that make use of factor risk models.
PCT/US2007/061266 2006-01-31 2007-01-30 Identifying and compensating for model mis-specification in factor risk models WO2007090106A2 (en)

Priority Applications (1)

Application Number Priority Date Filing Date Title
EP07710379A EP1979871A4 (en) 2006-01-31 2007-01-30 Identifying and compensating for model mis-specification in factor risk models

Applications Claiming Priority (4)

Application Number Priority Date Filing Date Title
US76385506P 2006-01-31 2006-01-31
US60/763,855 2006-01-31
US11/668,294 2007-01-29
US11/668,294 US7698202B2 (en) 2006-01-31 2007-01-29 Identifying and compensating for model mis-specification in factor risk models

Publications (2)

Publication Number Publication Date
WO2007090106A2 WO2007090106A2 (en) 2007-08-09
WO2007090106A3 true WO2007090106A3 (en) 2007-12-06

Family

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Family Applications (1)

Application Number Title Priority Date Filing Date
PCT/US2007/061266 WO2007090106A2 (en) 2006-01-31 2007-01-30 Identifying and compensating for model mis-specification in factor risk models

Country Status (3)

Country Link
US (4) US7698202B2 (en)
EP (1) EP1979871A4 (en)
WO (1) WO2007090106A2 (en)

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US11599892B1 (en) 2011-11-14 2023-03-07 Economic Alchemy Inc. Methods and systems to extract signals from large and imperfect datasets
US20130304671A1 (en) * 2012-05-11 2013-11-14 Axioma, Inc. Factor Risk Models with Multiple Specific Risk Estimates
US20140081888A1 (en) * 2012-09-14 2014-03-20 Goldman, Sachs & Co. Methods And Systems For Constructing Risk Parity Portfolios
US20140081889A1 (en) * 2012-09-14 2014-03-20 Axioma, Inc. Purifying Portfolios Using Orthogonal Non-Target Factor Constraints
US20140108295A1 (en) * 2012-10-11 2014-04-17 Axioma, Inc. Methods and Apparatus for Generating Purified Minimum Risk Portfolios
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US10922755B2 (en) 2013-06-17 2021-02-16 Intercontinental Exchange Holdings, Inc. Systems and methods for determining an initial margin
US20150081592A1 (en) * 2013-08-23 2015-03-19 Axioma, Inc. Adjusted Factor-Based Performance Attribution
US9974512B2 (en) 2014-03-13 2018-05-22 Convergence Medical, Llc Method, system, and computer program product for determining a patient radiation and diagnostic study score
US10664914B2 (en) * 2014-07-21 2020-05-26 American International Group, Inc. Portfolio optimization and evaluation tool
US10706473B2 (en) 2015-05-18 2020-07-07 Optimal Asset Management Systems and methods for customizing a portfolio using visualization and control of factor exposure
US20160343079A1 (en) * 2015-05-19 2016-11-24 Optimal Assett Managegment System and methods for completing a portfolio according to a factor blend analysis
US20160371614A1 (en) * 2015-06-16 2016-12-22 The CAPROCK Group, Inc. Platform for managing resources
US20170323385A1 (en) 2016-05-09 2017-11-09 Axioma, Inc. Methods and apparatus employing hierarchical conditional variance to minimize downside risk of a multi-asset class portfolio and improved graphical user interface
US11037244B1 (en) 2017-03-03 2021-06-15 Wells Fargo Bank, N.A. Computerized portfolio management tool
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US11908006B2 (en) * 2018-12-20 2024-02-20 Chicago Mercantile Exchange Inc. Message elimination in multi-model risk correlation system
CN109934503A (en) * 2019-03-19 2019-06-25 合肥工业大学 A kind of financial market risks method for early warning under internet environment
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CN111429272B (en) * 2020-02-20 2023-08-22 中信建投证券股份有限公司 Method and device for automatically generating quantized transaction factors and importance judgment
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CN112613981A (en) * 2020-12-23 2021-04-06 天阳宏业科技股份有限公司 Pressure testing method and device for bank asset combination risk income and electronic equipment
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Also Published As

Publication number Publication date
WO2007090106A2 (en) 2007-08-09
EP1979871A2 (en) 2008-10-15
US20070179908A1 (en) 2007-08-02
US7698202B2 (en) 2010-04-13
US10915962B2 (en) 2021-02-09
US8315936B2 (en) 2012-11-20
US20100153307A1 (en) 2010-06-17
US20130041848A1 (en) 2013-02-14
EP1979871A4 (en) 2011-03-23
US20180300813A1 (en) 2018-10-18

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