Please use this identifier to cite or link to this item:
http://hdl.handle.net/2445/181117
Title: | Covariance principle for capital allocation: a time-varying approach |
Author: | Urbina, Jilber Santolino, Miguel Guillén, Montserrat |
Keywords: | Anàlisi de variància Programació dinàmica Gestió del risc Analysis of variance Dynamic programming Risk management |
Issue Date: | 21-Aug-2021 |
Publisher: | MDPI |
Abstract: | The covariance allocation principle is one of the most widely used capital allocation principles in practice. Risks change over time, so capital risk allocations should be time-dependent. In this paper, we propose a dynamic covariance capital allocation principle based on the variance covariance of risks that change over time. The conditional correlation of risks is modeled by means of a dynamic conditional correlation (DCC) model. Unlike the static approach, we show that in our dynamic capital allocation setting, the distribution of risk capital allocations can be estimated, and the expected future allocations of capital can be predicted, providing a deeper understanding of the stochastic multivariate behavior of risks. The methodology presented in the paper is illustrated with an example involving the investment risk in a stock portfolio |
Note: | Reproducció del document publicat a: https://doi.org/10.3390/math9162005 |
It is part of: | Mathematics, 2021, vol. 9(16), num. 2005, p. 1-13 |
URI: | http://hdl.handle.net/2445/181117 |
Related resource: | https://doi.org/10.3390/math9162005 |
ISSN: | 2227-7390 |
Appears in Collections: | Articles publicats en revistes (Econometria, Estadística i Economia Aplicada) |
Files in This Item:
File | Description | Size | Format | |
---|---|---|---|---|
715444.pdf | 1.94 MB | Adobe PDF | View/Open |
This item is licensed under a Creative Commons License