On the Aggregation of Local Risk Models for Global Risk Management
- Topics:
- Investment and Capital Markets
- Tags:
- Barra,
- Covariance Matrix,
- Finance,
- Financial Planning,
- Financial Services,
- Management,
- Risk Management,
- Security,
- Strategy
- Source:
- Barra
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Overview: Given a collection of single-market covariance matrix forecasts for different markets, the paper describes how to embed them into a global forecast of total risk. This paper starts with any global covariance matrix forecast that contains information about cross-market correlations, and revising it to agree with the pre-specified submarket matrices, preserving the requirement that a covariance matrix be positive semi-definite. It characterizes the ways this can be done and address the resulting numerical optimization problem.
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Format: PDF | Size: 174KB | Date: Apr 2005 | Pages: 20
