Financial Risk Modelling and Portfolio Optimization with R

Preface

The project for this book began in mid-2010. At that time, financial markets were in distress and far from operating smoothly. The impact of the US real estate crisis could still be felt and the sovereign debt crisis in some European countries was beginning to emerge. Major central banks implemented measures to avoid a collapse of the inter-bank market by providing liquidity. Given the massive financial book and real losses sustained by investors, it was also a time when quantitatively managed funds were in jeopardy and investors questioned the suitability of quantitative methods for protecting their wealth from the severe losses they had made in the past.

Two years later not much has changed, though the debate on whether quantitative techniques per se are limited has ceased. Hence, the modelling of financial risks and the adequate allocation of wealth is still as important as it always has been, and these topics have gained in importance driven by experiences since the financial crisis started in the latter part of the previous decade.

The content of the book is aimed at these two topics by acquainting and familiarizing the reader with market risk models and portfolio optimization techniques that have been proposed in the literature. These more recently proposed methods are elucidated by code examples written in the language, a freely available software environment for ...