Objective

To develop a multifactor model enabling one of the world’s leading Asset Management Firms to measure and manage its cross sectional risk.

CRISIL's Solution

• Methodology Identification:  CRISIL worked with trading desks across all asset classes to establish portfolio parameters and model methodology, including factors such as market, sector and style. The style factors considered were value, volatility, momentum, growth, size, leverage and trading activity
• Model Building & Risk Decomposition: Combined multifactor models for all assets to get the overall risk scenario. Calculated the factor risk contribution using the variance-covariance matrix and asset weight matrix
• Factor Hedging: Assisted the client in hedging factors at different levels
• Performance Analysis: Analyzed  the performances of the baseline vis-à-vis custom index on out-of-sample data
• Tools Used: MATLAB, Python
  

Client Impact

• CRISIL helped client create a customized index comparable to market benchmark solution, at optimized cost
  
• Client achieved significant drop in hedging costs and reduced risk levels for the portfolio with increased the granularity of factors
  

Questions

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