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The University of Southampton
Centre for Risk Research

Risk management for portfolio optimization via advanced volatility estimation

This is a £266,000 two-year project starting in 2016, funded by Innovate UK, EPSRC and ESRC in conjunction with Seven Investment Management, a leading investment management company with £10bn of assets under management. The project aims to design, transfer and embed an innovative and cutting edge capability concerning risk management for investment portfolio optimization via advanced volatility estimation.

To achieve this aim, the Centre for Risk Research project team, including Professor Johnnie Johnson, Professor Frank McGroarty, Professor Ming-Chien Sung, Dr. Richard McGee, Dr. Patrick O’Sullivan and Dr. Tiejun Ma, will work closely with the investment team at Seven Investment Management.


One of the project funders
Economic & Social Research Council

The project will involve developing a best-in-class implied volatility extraction algorithm, creating a factor-based methodology for producing implied volatility estimates for assets without actively traded options, applying the volatility extraction algorithm to a comprehensive range of asset classes in real time, developing a new methodology for capturing cross-asset correlation and combining the selected output covariance matrix with a number of other best-in-class covariance estimators.

It is expected that the research will lead to the creation of an innovative capability for managing investment portfolio risk.

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