Model Insight - Barra Factors in RiskMetrics - April 2013
Apr 10, 2013
This Model Insight describes the integration of Barra Equity Factor Models into RiskManager’s VaR and stress-testing capabilities. Like the RiskManager pricing models, a Barra factor model explains the return of each asset in terms of the underlying characteristics that drive that return. Factor models extend to equities the many advantages of RiskManager’s pricing models and time-series methodology. After explaining the motivation for using factor models for VaR and stress-testing, this paper reviews the Barra factor model methodology, discusses its applications to VaR and stress-testing, and provides practical examples.
- Peter Shepard, Managing Director, MSCI Research