Roxton McNeal - Liability-Driven Investing (S4E11)
Flirting with Models
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The Process That Created the Hedging
The process that really created the hedging. I used a filtered historical simulation where I was actually scaling the volatilities of the time series and then rescaling them up to come up with a really good distribution. Once I got that distribution, I applied a PCA or a principal component analysis to it because I wanted to be able to separate those pieces. And if I could weight those exposures differently, I could use a maximum likelihood to figure out what weightings would give me the distribution for Bonnie Light. It loaded on US production, US demand, US growth, the S&P 500,. In fact, I think it would load very differently now. The dollar index drove a lot of
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