Portfolio management under stress : a Bayesian-net approach to coherent asset allocation / Riccardo Rebonato and Alexander Denev.

Includes bibliographical references and index.

Part I. Our Approach in Its Context:
1. How this book came about;
2. Correlation and causation;
3. Definitions and notation;

Part II. Dealing with Extreme Events:
4. Predictability and causality;
5. Econophysics;
6. Extreme value theory;

Part III. Diversification and Subjective Views;
7. Diversification in modern portfolio theory;
8. Stability: a first look;
9. Diversification and stability in the Black-Litterman model;
10. Specifying scenarios: the Meucci approach;

Part IV. How We Deal with Exceptional Events:
11. Bayesian nets;
12. Building scenarios for causal Bayesian nets;

Part V. Building Bayesian Nets in Practice:
13. Applied tools;
14. More advanced topics: elicitation;
15. Additional more advanced topics;
16. A real-life example: building a realistic Bayesian net;

Part VI. Dealing with Normal-Times Returns:
17. Identification of the body of the distribution;
18. Constructing the marginals;
19. Choosing and fitting the copula;

Part VII. Working with the Full Distribution:
20. Splicing the normal and exceptional distributions;
21. The links with CAPM and private valuations;

Part VIII. A Framework for Choice:
22. Applying expected utility;
23. Utility theory: problems and remedies;

Part IX. Numerical Implementation:
24. Optimizing the expected utility over the weights;
25. Approximations;

Part X. Analysis of Portfolio Allocation:
26. The full allocation procedure: a case study;
27. Numerical analysis;
28. Stability analysis;
29. How to use Bayesian nets: our recommended approach;
30. Appendix I. The links with the Black-Litterman approach; 31. Appendix II. Marginals, copulae and the symmetry of return distributions;

References--
Index--

"Portfolio Management Under Stress offers a novel way to apply the well-established Bayesian-net methodology to the important problem of asset allocation under conditions of market distress or, more generally, when an investor believes that a particular scenario (such as the break-up of the Euro) may occur. Employing a coherent and thorough approach, it provides practical guidance on how best to choose an optimal and stable asset allocation in the presence of user-specified scenarios or 'stress conditions'. The authors place causal explanations, rather than association-based measures such as correlations, at the core of their argument, and insights from the theory of choice under ambiguity aversion are invoked to obtain stable allocations results. Step-by-step design guidelines are included to allow readers to grasp the full implementation of the approach, and case studies provide clarification. This insightful book is a key resource for practitioners and research academics in the post-financial crisis world"--