This is a summary of links featured on Quantocracy on Monday, 02/08/2021. To see our most recent links, visit the Quant Mashup. Read on readers!
-
Risk-constrained optimization [OSM]Our last post parsed portfolio optimization outputs and examined some of the nuances around the efficient frontier. We noted that when you start building portfolios with a large number of assets, brute force simulation can miss the optimal weighting scheme for a given return or risk profile. While optimization finds those weights (it should!), the output can lead to infinitesimal contributions
-
Contagion and self-fulfilling dynamics [SR SV]Contagion and self-fulfilling feedback loops are propagation mechanisms at the heart of systemic financial crises. Contagion refers to the deterioration of fundamentals through the financial network, often through a cascade of insolvencies. A critical factor is the similarity of assets held by financial institutions. The commonality of assets erases some of the benefits of diversification because