Risk Management
Central clearing counterparty houses (CCPs) play a fundamental role in mitigating the counterparty risk for exchange traded options. CCPs cover for possible losses during the liquidation of a defaulting member's portfolio by collecting…
We provide an elementary proof of the dual representation of Expected Shortfall on the space of integrable random variables over a general probability space. Unlike the results in the extant literature, our proof only exploits basic…
If a financial asset's price movement impacts a firm's product demand, the firm can respond to the impact by adjusting its operational decisions. For example, in the automotive industry, car makers decrease the selling prices of…
Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the…
We consider the problem of optimally sharing a financial position among agents with potentially different reference risk measures. The problem is equivalent to computing the infimal convolution of the risk metrics and finding the so-called…
Credit risk in the China's bond market has become increasingly evident, creating a progressively escalating risk of default for credit bond investors. Given the current incomplete and inaccurate bond information disclosure, timely tracking…
We focus on the time-varying modeling of VaR at a given coverage $\tau$, assessing whether the quantiles of the distribution of the returns standardized by their conditional means and standard deviations exhibit predictable dynamics. Models…
One of the most challenging aspects in the analysis and modelling of financial markets, including Credit Default Swap (CDS) markets, is the presence of an emergent, intermediate level of structure standing in between the microscopic…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
We systematically study pairwise counter-monotonicity, an extremal notion of negative dependence. A stochastic representation and an invariance property are established for this dependence structure. We show that pairwise…
The celebrated Expected Shortfall (ES) optimization formula implies that ES at a fixed probability level is the minimum of a linear real function plus a scaled mean excess function. We establish a reverse ES optimization formula, which says…
Systemic risk measures such as CoVaR, CoES and MES are widely-used in finance, macroeconomics and by regulatory bodies. Despite their importance, we show that they fail to be elicitable and identifiable. This renders forecast comparison and…
In the effort to achieve carbon neutrality through a decentralized electricity market, accurate short-term load forecasting at low aggregation levels has become increasingly crucial for various market participants' strategies. Accurate…
The diversification quotient (DQ) is recently introduced for quantifying the degree of diversification of a stochastic portfolio model. It has an axiomatic foundation and can be defined through a parametric class of risk measures. Since the…
We propose a risk measurement approach for a risk-averse stochastic problem. We provide results that guarantee that our problem has a solution. We characterize and explore the properties of the argmin as a risk measure and the minimum as a…
Motivated by the results of static monetary or star-shaped risk measures, the paper investigates the representation theorems in the dynamic framework. We show that dynamic monetary risk measures can be represented as the lower envelope of a…
Lending Protocols (LPs), as blockchain-based lending systems, allow any agents to borrow and lend cryptocurrencies. However, liquidity risks could occur, especially when salient loans are initiated by a particular group of borrowers. This…
This paper shows that the CoVaR,$\Delta$-CoVaR,CoES,$\Delta$-CoES and MES systemic risk measures can be represented in terms of the univariate risk measure evaluated at a quantile determined by the copula. The result is applied to derive…
This paper offers a mathematical invention that shows how to convert integrated quantiles, which often appear in risk measures, into integrated cumulative distribution functions, which are technically more tractable from various…
In the field of quantitative finance, volatility models, such as ARCH, GARCH, FIGARCH, SV, EWMA, play the key role in risk and portfolio management. Meanwhile, factor investing is more and more famous since mid of 20 century. CAPM, Fama…