Risk Management
The study of long-horizon returns has received a great deal of attention in recent years (see, for example, Boudoukh, Richardson, and Whitelaw (2008), Neuberger (2012) and Lee (2013), Fama and French (2018)). While most of the discussions…
Uncertainty requires suitable techniques for risk assessment. Combining stochastic approximation and stochastic average approximation, we propose an efficient algorithm to compute the worst case average value at risk in the face of tail…
Vanna-Volga is a popular method for the interpolation/extrapolation of volatility smiles. The technique is widely used in the FX markets context, due to its ability to consistently construct the entire Lognormal smile using only three…
In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, the latter normally being available from Basel ratings. Rating transition matrices…
This paper proposes a simple technical approach for the analytical derivation of Point-in-Time PD (probability of default) forecasts, with minimal data requirements. The inputs required are the current and future Through-the-Cycle PDs of…
The paper provides a stochastic model useful for assessing the capital requirement for demographic risk. The model extends to the market consistent context classical methodologies developed in a local accounting framework. In particular we…
In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we…
We develop a novel stochastic valuation and premium calculation principle based on probability measure distortions that are induced by quantile processes in continuous time. Necessary and sufficient conditions are derived under which the…
One index satisfies the duality axiom if one agent, who is uniformly more risk-averse than another, accepts a gamble, the latter accepts any less risky gamble under the index. Aumann and Serrano (2008) show that only one index defined for…
In this paper, we examine the effect of background risk on portfolio selection and optimal reinsurance design under the criterion of maximizing the probability of reaching a goal. Following the literature, we adopt dependence uncertainty to…
This paper studies a mean-risk portfolio choice problem for log-returns in a continuous-time, complete market. This is a growth-optimal problem with risk control. The risk of log-returns is measured by weighted Value-at-Risk (WVaR), which…
This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…
Current reporting standards for insurers require a decomposition of observed profits and losses in such a way that changes in the insurer's balance sheet can be attributed to specified risk factors. Generating such a decomposition is a…
The author presents alternatives to the Black-Scholes european call option pricing model by incorporating different transaction cost structures in the replicating strategy. In particular, an exponentially decreasing structure is proposed…
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
Any firm whose business strategy has an exposure constraint that limits its potential gain naturally considers expansion, as this can increase its exposure. We model business expansion as an enlargement of the opportunity set for business…
This paper investigates the time-consistent mean-variance reinsurance-investment (RI) problem faced by life insurers. Inspired by recent findings that mortality rates exhibit long-range dependence (LRD), we examine the effect of LRD on RI…
In this paper a quantitative analysis of the ruin probability in finite time of discrete risk process with proportional reinsurance and investment of finance surplus is focused on. It is assumed that the total loss on a unit interval has a…
Cryptocurrency, the most controversial and simultaneously the most interesting asset, has attracted many investors and speculators in recent years. The visibly significant market capitalization of cryptos also motivates modern financial…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…