Creating and validating risk models [19]

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Bullet points include: Introduce dependence between returns by assuming a factor structure for i I.e.Here B is a J N matrix and Y is an N N diagonal (or in practice just almost diagonal) matrix A vector of random variables may then be written as: Where bi,j is the (i,j)’th element of BTB, and vi equals the i’th diagonal element of D and fj has unit variance

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