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Seminar 217, Risk Management: Solving the “curse of dimensionality” problem in multi-asset-class risk models

Seminar: Risk Seminar | February 22 | 12:30-2 p.m. | 1011 Evans Hall


Speaker: Jose Menchero, Bloomberg

Center for Risk Management Research


Estimating a robust risk model risk for a portfolio that spans multiple asset classes is a challenging task due to the “curse of dimensionality” (i.e., the problem of estimating too many relationships from too few observations). While the sample covariance matrix is easily computed, it is susceptible to capturing spurious relationships that make it unsuitable for portfolio construction purposes. In this talk, we present a new approach for constructing risk models that span multiple asset classes. We also discuss the implications for portfolio risk management and portfolio construction.


jschellenberg@berkeley.edu