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Download our eBook, featuring the answers from five varying risk perspectives

APT, Axioma, Barra, Northfield, and R-Squared all respond to six key questions in this eBook. Each of FactSet's integrated risk model providers explain their perspectives on the market crisis, modeling tools, and much more.

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Our series of discussions in six parts:

If we've gone global, how should models adapt?
How can investors analyze risk in the emerging markets?
What has the market crisis done to risk modeling?
Looking to the horizon length - does a long horizon still prove worthwhile?
Can you do it all with just one model?
Which risk measures work when dealing with extreme losses? Do you favor fat tails, MCVaR, etc., or do you favor a traditional exposure-led approach to risk?

Exerpt of Commentary by Oleg Ruban of MSCI Barra

Of course, in our view the most appropriate way to analyze different asset classes is through different sets of factors. So a different set of factors is likely to be relevant to the risk of the fixed income portfolio and a different set of factor is likely to be relevant to the risk of an equity portfolio. However, it’s also important to have an overall view of risk that is computed using the same methodology. And the way to do that is to essentially combine these single asset class models into a cost asset class model.

So what we do for example in our integrated model is we allow different asset class returns to be explained by different sets of factors. And then, we aggregate risk in a multi-asset class portfolio by robustly accounting for correlations between different asset classes. So it’s really – the answer is really that both things, if you like makes sense. On the one hand of course, different types of factors need to be used to analyze returns in different asset classes. From the other hand, you then need a combined picture of risk. So you need to find ways to robustly combine these different models into a single model that allows you to look at the risk of your whole portfolio.