SEM217: Jose Menchero, Bloomberg: Advances in Estimating Factor Correlations

Tuesday, September 6th @ 11:00-12:30 PM  RM 648 Evans Hall

Covariance matrices are used in finance for two basic purposes: predicting portfolio volatility and constructing optimal portfolios. Covariance matrices that work well for one use case may work poorly for the other use case, especially when the dimensionality is high. In this seminar, we present a technique for estimating large covariance matrices that produces reliable results for both volatility forecasting as well as portfolio optimization.