Journal of Risk
ISSN:
1465-1211 (print)
1755-2842 (online)
Editor-in-chief: Farid AitSahlia
General covariance, the spectrum of Riemannium and a stress test calculation formula
Piotr Chmielowski
Abstract
ABSTRACT
The formula is motivated by some recent and some old developments in random matrix theory and a requirement that it be explicitly invariant under a change of basis of risk factors. It may naturally be interpreted as the standard deviation stressed by two effects: a correlation shear due to uncertainty of estimation from a finite sample and an additional stress due to unobserved market risk factors. An example application for a relative-value portfolio of crude oil futures is presented.
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