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Uncertainty in financial markets makes portfolio diversification a valuable tool to navigate difficult market conditions. Diversification is probably the only free lunch in finance. It is closely related to asset segmentation: different representations of portfolio diversification are derived depending on what is considered the atom of asset allocation (capital / risk / factor). Probably a single measurement cannot provide a comprehensive representation.
Quantitative research at Amundi
This paper addresses management of sovereign wealth from the perspective of the theory of contingent claims. Starting with the sovereign’s balance sheet, we frame sovereign fund management as an asset-liability management (ALM) problem, covering all public entities and taking explicit account of all sources of risks affecting government resources and expenditures. Real-life SWFs asset allocations differ strongly from theoretical ones. Financial management of the sovereign balance sheet is hampered by a lack of aggregate data, which compromises the coordination of sovereign wealth management with fiscal policy, monetary policy and public debt management. In this framework, we suggest institutional arrangements that could overcome this obstacle and enable efficient coordination.
Zvi BODIE, Marie BRIERE