Flirting with Models

The Research Library of Newfound Research

Month: November 2012

The Perils of Estimating Correlation Directly From Historical Returns

Correlations are often estimated from recent, historical data, but this can lead to estimation error, even when true correlations are known!

Sharpe Ratios: A New Way to Evaluate Portfolio Loss

The Sharpe ratio can be an estimate of the probability of a portfolio loss. This alternative interpretation can be useful in risk management.

Weather, Earthquakes, Frankenstorms and Portfolio Risk Management

Portfolio risk management is more akin to forecasting earthquakes than predicting weather. Our models aim to generate robust early warnings for tail events.
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