Edmond LEZMI, Paul JUSSELIN, Hassan MALONGO ELOUAÏ, Côme MASSELIN, Thierry RONCALLI, Tung-Lam DAO
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Mean-variance efficient portfolios are optimal as Modern Portfolio Theory alleges, only if risk were foreseeable, that is under the hypothesis that price (co)variance is known with certainty. Admitting uncertainty changes the perception. If portfolios are presumed vulnerable to unforeseen price shocks as well, risk optimality is no longer obtained by minimising variance but also pertains to the diversification in the portfolio, for that provides protection against unforeseen events. Generalising MPT in this respect leads to the double risk-objective to minimise variance and maximise diversification. We demonstrate that a series of portfolio construction techniques developed as an alternative to MPT, in fact address this double objective, under which Bayesian optimisation, entropy-based optimisation, risk parity and covariance shrinkage. We give an analytical demonstration and provide by that new theoretical backing for these techniques. Amundi Working Paper December 2016 (First version)September 2017 (Revised version)
Marielle de JONG
Head of Fixed Income Quantitative Research at Amundi
Marie BRIERE, Ariane SZAFARZ
Accurate estimations of volatility and correlation risk represent crucial inputs in terms of investment decisions. This article presents a new way to capture the portfolio dependence by introducing a new covariance estimator called the reactive covariance model.
Hassan MALONGO ELOUAÏ, Dave BENICHOU, Eduardo ABI JABER
We provide conditions for the existence and the uniqueness of strictly stationary solutions ofthe usual Dynamic Conditional Correlation GARCH models (DCC-GARCH). The proof is based on Tweedie's (1988) criteria, after having rewritten DCC-GARCH models as nonlinear Markov chains. We also study the existence of their oments and discuss the tightness of our sufficient conditions.
Jean-David FERMANIAN, Hassan MALONGO ELOUAÏ
The Greek drama of the late 2000s has returned sovereign risk awareness to centre stage. The default affected a country with a relatively developed economy. It resulted in huge losses in the value of domestic assets: public debt, but also private debt, equity, real estate and furthermore pension rights and human capital. The burden has, not entirely but importantly, fallen on residents.
Professor - Conservatoire National des Arts et Métiers, Senior Advisor, Amundi