Index Tracking: Reproducing the Performance of a Financial Market Index (and more)
An index tracking portfolio1 is a portfolio designed to track as closely2 as possible a financial market index when its exact replication3 is either impracti...
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Volatility Forecasting: Simple and Exponentially Weighted Moving Average Models
One of the simplest and most pragmatic approach to volatility forecasting is to model the volatility of an asset as a weighted moving average of its past sq...
Range-Based Volatility Estimators: Overview and Examples of Usage
Volatility estimation and forecasting plays a crucial role in many areas of finance. For example, standard risk-based portfolio allocation methods (minimum ...
Correlation Matrix Stress Testing: Random Perturbations of a Correlation Matrix
In the previous posts of this series, I detailed a methodology to perform stress tests on a correlation matrix by linearly shrinking a baseline correlation m...
Managing Missing Asset Returns in Portfolio Analysis and Optimization: Backfilling through Residuals Recycling
In a multi-asset portfolio, it is usual that some assets have shorter return histories than others1. Problem is, the presence of assets whose return histori...