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Forecasting compositional risk allocations

Author

Listed:
  • Tim J. Boonen

    () (University of Amsterdam)

  • Montserrat Guillén

    (Riskcenter, Department of Econometrics, University of Barcelona. Diagonal Av. 690, 08034, Barcelona, Spain.)

  • Miguel Santolino

    (Riskcenter, Department of Econometrics, University of Barcelona. Diagonal Av. 690, 08034, Barcelona, Spain.)

Abstract

We analyse models for panel data that arise in risk allocation problems,when a given set of sources are the cause of an aggregate risk value. We focus on the modeling and forecasting of proportional contributions to risk. Compositional data methods are proposed and the regression is flexible to incorporate external information from other variables. We guarantee that projected proportional contributions add up to 100%, and we introduce a method to generate confidence regions with the same restriction. An illustration using data from the stock exchange is provided.

Suggested Citation

  • Tim J. Boonen & Montserrat Guillén & Miguel Santolino, 2017. "Forecasting compositional risk allocations," Working Papers XREAP2017-04, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2017.
  • Handle: RePEc:xrp:wpaper:xreap2017-04
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    More about this item

    Keywords

    Simplex; capital allocation; dynamic management.;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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