Correlation, co-dependency and risk aggregation [18]

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Bullet points include: Risk model vendors may use combination. E.g. factors derived from Fundamental and/or Econometric approaches plus further ‘blind’ factors derived statistically from residual after other factors taken into account. May cater for market structure changes more rapidly. Even when they don’t the three model types are actually less dissimilar than they may appear. Ultimately all are derived in some shape or form from past data (and, except for statistical factor models, prior views as to how to interpret this past data, but these will be strongly coloured by the same data!). Except for fully ‘market-implied’ risk models

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