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Do Equity Signals Earn Their Place in a Corporate Bond Portfolio?

Suppose a bond portfolio becomes less volatile after adding signals from its issuers’ equity prices and financial statements. That sounds like a useful extension: another market may reveal informat...

SVD and PCA for Systematic Investing: From Matrix Decomposition to Portfolio Risk

A portfolio with ten ETFs does not necessarily contain ten independent bets. Several sector funds may rise and fall with the same equity-market shock. A collection of bond ETFs may share much of it...

Regime Switching in Options: From Historical States to Risk-Neutral Prices

A high-volatility state estimated from historical returns can help describe market risk. Turning that state into an option price requires another ingredient: the price investors assign to future re...

Financial Planning with Stochastic Programming

In the realm of financial planning, incorporating risk into investment decisions is paramount. This post explores a stochastic programming model aimed at optimizing investment strategies over a giv...

Measuring Private Investment Returns

This post is about methodologies to measure private investment return (python code included). Reference for this post can be found in INSEAD case studies. Full python code can be found in my GitHub...

Sector Factor Models: Correct Returns, SVD, and Robust Estimation

Two regressions can explain almost the same sector returns while assigning quite different importance to value, profitability, and investment. When those factor returns overlap, the data may identi...

When Can We Trust a Sector ETF's Factor Exposures?

Technology and Utilities are both equity sectors, but their responses to common return patterns differ. Factor analysis makes those differences visible. The harder question is whether an exposure e...

CDS in QuantLib: calibrate survival and reconcile the credit legs

A credit default swap exchanges a running premium for protection against specified credit events. A useful implementation must connect the quoted spreads to survival probabilities and then explain ...

Cross-currency swaps: a cash-flow ledger before the pricing engine

A cross-currency swap combines two interest-rate exposures with an exchange-rate exposure. Before choosing a curve engine, it helps to write the actual currency ledger, including principal exchange...

Interest rate swaps in QuantLib: cash flows, fair coupons and hedging

An interest rate swap becomes easier to reason about when “pay fixed” and “receive floating” are written as signed cash flows. Its initial fair coupon is a consequence of those flows, their schedul...