Equity Portfolio Risk (Volatility) Estimation Using Market Information and Sentiment

15 Pages Posted: 26 Jun 2009 Last revised: 5 Feb 2010

See all articles by Leela R. Mitra

Leela R. Mitra

CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications; OptiRisk Systems; Brunel University

Gautam Mitra

Brunel University London - CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications

Dan di Bartolomeo

Northfield Information Services

Date Written: December 1, 2008

Abstract

Multifactor models are often used as a tool to describe equity portfolio risk. Naturally, risk is dependent on the market environment and investor sentiment. Traditional factor models fail to update quickly as market conditions change. It is desirable that the risk model updates to incorporate new information as it becomes available and for this reason diBartolomeo & Warrick introduce a factor model that uses option implied volatility to improve estimates of the future covariance matrix. We extend this work to use both quantified news and implied volatility to improve risk estimates as the market sentiment and environment changes.

Suggested Citation

Mitra, Leela R. and Mitra, Gautam and di Bartolomeo, Dan, Equity Portfolio Risk (Volatility) Estimation Using Market Information and Sentiment (December 1, 2008). Available at SSRN: https://ssrn.com/abstract=1425624 or http://dx.doi.org/10.2139/ssrn.1425624

Leela R. Mitra (Contact Author)

CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications ( email )

John Crank Building
Brunel University
Uxbridge, UB8 3PH
United Kingdom

OptiRisk Systems ( email )

UNICOM R&D House
One Oxford Road
Uxbridge, UB9 4DA
United Kingdom

Brunel University ( email )

United Kingdom

Gautam Mitra

Brunel University London - CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications ( email )

John Crank Building
Brunel University
Uxbridge, UB8 3PH
United Kingdom

Dan Di Bartolomeo

Northfield Information Services ( email )

77 N Washington St # 902
Boston, MA 02114
United States

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