Term Structure of Risk, the Role of Known and Unknown Risks and Non-Stationary Distributions

25 Pages Posted: 9 Mar 2009

See all articles by Ric Colacito

Ric Colacito

University of North Carolina Kenan-Flagler Business School; NBER

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: February 2009

Abstract

In this paper we document the presence of a term structure of risk and we propose how to measure it using alternative models to forecast volatility and the Value at Risk at different horizons. We then quantify the benefits of an investor that is aware of the existence of a term structure of risk in the context of an asset allocation exercise.

Suggested Citation

Colacito, Riccardo and Engle, Robert F., Term Structure of Risk, the Role of Known and Unknown Risks and Non-Stationary Distributions (February 2009). NYU Working Paper No. FIN-08-040. Available at SSRN: https://ssrn.com/abstract=1354527

Riccardo Colacito

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://drric.web.unc.edu/

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Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York University (NYU) - Department of Finance

Stern School of Business
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United States

National Bureau of Economic Research (NBER)

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