IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Forecasting Portfolio Risk in Normal and Stressed Markets

  • Vineer Bhansali
  • Mark B. Wise
Registered author(s):

    The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated values. For instance, in times of severe market stress, one would expect with certainty to see the correlation of yield levels and credit spreads go to -1, even though historical estimates will miss this region of correlation. This event might lead to realized portfolio risk profile substantially different from what was initially estimated. The purpose of this paper is to explore the correlation driven effects on fixed income portfolio risks. To achieve this, we propose a methodology to estimate portfolio risks in both normal and stressed times using confidence weighted forecast correlations.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://arxiv.org/pdf/nlin/0108022
    File Function: Latest version
    Download Restriction: no

    Paper provided by arXiv.org in its series Papers with number nlin/0108022.

    as
    in new window

    Length:
    Date of creation: Aug 2001
    Date of revision: Sep 2001
    Handle: RePEc:arx:papers:nlin/0108022
    Contact details of provider: Web page: http://arxiv.org/

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:nlin/0108022. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.