Seminar 217, Risk Management: Hierarchical PCA and modeling asset correlations (Online)

Risk Seminar
Sep 22, 2020 11:00am to 12:30pm
Location: 
Online
Status: 
Happening As Scheduled
ABSTRACT: Modeling return correlations between thousands of stocks poses great challenges, as empirical estimators tend to perform poorly when assets don’t share common risk factors, such as country or industry sector. In this paper, we show the advantages of using Hierarchical Principal Component Analysis (HPCA) for modeling correlations, as opposed to the classic PCA. Furthermore, we propose a...
Marco Avellaneda, New York University (Speaker)