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Blog Highlights...

For anyone who might have come across this blog for the first time, there's definitely a lot of material to cover from the past couple of years.  So I thought I'd provide a list of some of my favorites.  Enjoy!

Happy new year everyone!

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Modeling Credit Risk...

     Here's a link to a presentation I gave back in August on modeling credit risk.  If anyone would like a copy of the slides, go ahead and drop me a line... https://www.gotostage.com/channel/39b3bd2dd467480a8200e7468c765143/recording/37684fe4e655449f9b473ec796241567/watch      Timeline of the presentation: Presentation Begins:                                                                0:58:00 Logistic Regression:                                                                1:02:00 Recent Trends in Probabilities of Default:                              1:10:20 Machine Learning:                                                                  1:15:00 Merton Structural Model:                                                        1:19:30 Stochastic Asset Simulation Model:                                        1:27:30 T-Year Merton Model:                
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Modeling Black-Litterman; Part 1 - Reverse Optimization

  "The 'radical' of one century is the 'conservative' of the next." -Mark Twain In this series, I'm going to explore some of the advances in portfolio management, construction, and modeling since the advent of Harry Markowitz's Nobel Prize winning Modern Portfolio Theory (MPT) in 1952. MPT's mean-variance optimization approach shaped theoretical asset allocation models for decades after its introduction.  However, the theory failed to become an accepted industry practice, so we'll explore why that is and what advances have developed in recent years to address the shortcomings of the original model. The Problems with Markowitz For the purpose of illustrating the benefits of diversification in a simple two-asset portfolio, Markowitz's model was a useful tool in producing optimal weights at each level of assumed risk to create efficient portfolios.   However, in reality, investment portfolios are complex and composed of large numbers of holdin
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Evidence the SPY is Overbought...

 A quick note on the recent market rally here of late.  It's plain to see the markets have been on a tear for the month of June (and going back into May for the QQQ) as the SPY closed today at its highest level in almost fourteen months. If we start to look at the historical levels, however, it appears the SPY may be overbought in the short-run and susceptible to a mean-reverting pattern. Here's the daily chart of the SPY as of today's (6/15/23) close... When looking at the distance between the closing price and the 50-day moving average (illustrated by the yellow bar), we're noticing a large gap... this can be measured by a statistic I developed which I casually refer to as "variance"... or the distance between current prices and their respective moving averages. Historically, throughout the life of the SPY (which debuted in January of '93), the variance over the 50-day moving average has peaked at a reading of 3.20... today's reading posts up at 2.49
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