A Portfolio's Common Causal Conditional Risk-neutral PDE

Autor:	Dominguez, Alejandro Rodriguez
Rok vydání:	2024
Předmět:	Quantitative Finance - Portfolio Management Quantitative Finance - Mathematical Finance 35A35 93C20 91G70 91G60 91G10 91G30 58J65 G.1.8 G.3 J.4
Druh dokumentu:	Working Paper
Popis:	Portfolio's optimal drivers for diversification are common causes of the constituents' correlations. A closed-form formula for the conditional probability of the portfolio given its optimal common drivers is presented, with each pair constituent-common driver joint distribution modelled by Gaussian copulas. A conditional risk-neutral PDE is obtained for this conditional probability as a system of copulas' PDEs, allowing for dynamical risk management of a portfolio as shown in the experiments. Implied conditional portfolio volatilities and implied weights are new risk metrics that can be dynamically monitored from the PDEs or obtained from their solution. Comment: 6 pages, 4 figures, Mathematical and Statistical Methods for Actuarial Sciences and Finance - MAF2024
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/2401.00949 Zobrazit plný text záznamu View this record from Arxiv