Risk Management
This note outlines an approach to stress testing of covariance of financial time series, in the context of financial risk management. It discusses how the geodesic distance between covariance matrices implies a notion of plausibility of…
We study a problem of optimal allocation in a discrete-time multi-period pure-exchange economy, where agents have preferences over stochastic endowment processes that are represented by strongly time-consistent dynamic risk measures. We…
As insurers increasingly behave like financial intermediaries and actively participate in capital markets, understanding the dependence structure between insurance and financial risks becomes crucial for insurers' operations. This paper…
This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive…
The lack of high-quality public cyber incident data limits empirical research and predictive modeling for cyber risk assessment. This challenge persists due to the reluctance of companies to disclose incidents that could damage their…
This paper develops a unified framework for the robustification of risk measures beyond the classical convex and cash-additive setting. We consider general risk measures on Lp spaces and construct their robust counterparts through families…
The purpose of this paper is to describe and extend the use of the newly-introduced measure, residual estimation risk. Following the seminal work of Bignozzi and Tsanakas, the quantification of residual estimation risk is proposed in a…
In life insurance, life tables are used to estimate the survival distribution of individuals from a given population. However, these tables only provide survival probabilities at integer ages but no information about the distribution of…
Auto-deleveraging (ADL) mechanisms are a critical yet understudied component of risk management on cryptocurrency futures exchanges. When available margin and other loss-absorbing resources are insufficient to cover losses following large…
We study the problem of asset liquidation in financial systems. During financial crises, asset liquidation is often inevitable but can lead to substantial losses if a significant amount of illiquid assets are sold simultaneously at…
This work evaluates the impact of contagious cyber-events, over a finite horizon, on firms' financial health and on a cyber insurance portfolio. Our approach builds on key empirical findings from economics and cybersecurity. In economics,…
This technical report presents a stochastic model for pricing weather derivatives and devising hedging strategies tailored to Indian markets. We model temperature dynamics using a modified Ornstein-Uhlenbeck process with jumps to account…
In this paper, we establish the stochastic ordering of the Gini indexes for multivariate elliptical risks which generalized the corresponding results for multivariate normal risks. It is shown that several conditions on dispersion matrices…
We establish a connection between dependence structures and subclasses of distortion riskmetrics under which the latter are additive. A new notion of positive dependence, called partial comonotonicity, is developed, which nests the existing…
The estimation of marginal loan write-off probabilities is a non-trivial task when modelling the loss given default (LGD) risk parameter in credit risk. We explore two types of survival models in estimating the overall write-off probability…
Various financial market scenarios may cause heterogeneous risk assessments among analysts, which motivates the usage of the Generalized Risk Measure in Fadina et al. (2024, Finance and Stochastics). Effectively synthesizing these diverse…
In this paper, we consider catastrophe stop-loss reinsurance valuation for a reinsurance company with dynamic contagion claims. To deal with conventional and emerging catastrophic events, we propose the use of a compound dynamic contagion…
We study market making in aggregator-routed RFQ markets where platform routing depends on slowly varying dealer performance scores. We propose a two-tier stochastic control model that separates RFQ-level price competition from a macro…
We introduce $\textbf{Slippage-at-Risk (SaR)}$, a quantitative framework for measuring liquidity risk in perpetual futures exchanges. Unlike backward-looking metrics such as Value-at-Risk computed on historical returns or realized deficit…
Diversification is usually viewed as a reliable way to reduce risk, yet it can dramatically fail for heavy-tailed losses with infinite mean: pooling independent losses of this type may increase tail risk at every threshold. We study this…