A0420
Title: Measuring and hedging GEOVOL
Authors: Susana Campos Martins - University of Oxford (United Kingdom) [presenting]
Abstract: Some events impact volatilities of most assets, asset classes, sectors and countries, causing serious damage to investment portfolios. The magnitude of such shocks is defined as GEOVOL which is a broad measure of geopolitical risk. The purpose is to introduce a statistical formulation of such events as common volatility innovations in both a multivariate volatility and an asset pricing context. Simulations verify the statistical performance of the simple but novel estimator and a test to detect GEOVOL. Two empirical examples show the events that have had the biggest impact on financial markets. The results are useful for portfolio optimization and risk forecasting.
