Volatility and Correlation Modeling for Sector Allocation in International Equity Markets
By Melanie Fan and Kate Yuan Reliable estimates of volatility and correlation are crucial in asset allocation and risk management. This paper investigates Static, RiskMetrics, and Dynamic Conditional Correlation (DCC) models for estimating volatility and correlation by testing them in an asset allocation context. Optimal allocation weights for one year found using estimates from each […]
Crisis Period Forecast Evaluation of the DCC-GARCH Model
By Yang Ding The goal of this paper is to investigate the forecasting ability of the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH). We estimate the DCC’s forecasting ability relative to unconditional volatility in three equity-based crashes: the S&L Crisis, the Dot-Com Boom/Crash, and the recent Credit Crisis. The assets we use are the […]
Rebalancing, Conditional Value at Risk, and t-Copula in Asset Allocation
By Irving Wang Traditional asset allocation methods for modeling the trade between risk and return do not fully reflect empirical distributions. Thus, recent research has moved away from assumptions of normality to account for risk by looking at fat tails and asymmetric distributions. Other studies have also considered multiple period frameworks to include asset rebalancing. […]
