The Guide to Avoiding Downturn Vulnerability by Managing Correlation Dependency
Solidly grounded in quantitative finance research, Asymmetric Dependence in Finance is the definitive resource that offers an important analysis of the risks and benefits of asset correlation. The book spans the topics managing asymmetric dependence using Copulas, to mitigating asymmetric dependence risk in real estate, credit and CTA markets that comprise a survey of the most current tools available for measuring and managing this crucial issue.
With contributions from noted experts in the field, this book explores the risks and benefits of asset correlation and offers the most current strategies and models that can be implemented to protect investments that are no longer insulated from downturns by simply diversifying funds. It clearly shows that the relation between assets is much richer than previously thought, and correlation between returns is dependent on the state of the market. Correlations between assets significantly increase during market downturns compared to market upturns. The benefits of diversification collapse at the very time fund managers need to rely on diversification.
To help investors avoid financial disasters such as the 2008 global financial crisis and the 2006 hedge–fund crisis, the authors outline practical measures that can be implemented to boost fund performance and a proven strategy for putting in place an options–based approach that limits a portfolio′s risk.
Written for fund managers, investors and financial officers, Asymmetric Dependence in Finance presents the most effective tools and strategies for improving fund, portfolio, and organization performance.
About the Editors ix
CHAPTER 1 Disappointment Aversion, Asset Pricing and Measuring Asymmetric Dependence 1Jamie Alcock and Anthony Hatherley
CHAPTER 2 The Size of the CTA Market and the Role of Asymmetric Dependence 17Stephen Satchell and Oliver Williams
CHAPTER 3 The Price of Asymmetric Dependence 47Jamie Alcock and Anthony Hatherley
CHAPTER 4 Misspecification in an Asymmetrically Dependent World: Implications for Volatility Forecasting 75Salman Ahmed, Nandini Srivastava and Stephen Satchell
CHAPTER 5 Hedging Asymmetric Dependence 110Anthony Hatherley
CHAPTER 6 Orthant Probability–Based Correlation 133Mark Lundin and Stephen Satchell
CHAPTER 7 Risk Measures Based on Multivariate Skew Normal and Skew t –Mixture Models 152Sharon X. Lee and Geoffrey J. McLachlan
CHAPTER 8 Estimating Asymmetric Dynamic Distributions in High Dimensions 169Stanislav Anatolyev, Renat Khabibullin and Artem Prokhorov
CHAPTER 9 Asymmetric Dependence, Persistence and Firm–Level Stock Return Predictability 198Jamie Alcock and Petra Andrlikova
CHAPTER 10 The Most Entropic Canonical Copula with an Application to Style Investment 221Ba Chu and Stephen Satchell
CHAPTER 11 Canonical Vine Copulas in the Context of Modern Portfolio Management: Are They Worth It? 263Rand Kwong Yew Low, Jamie Alcock, Robert Faff and Timothy Brailsford