Risk Management
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…
We study the asymptotic behavior of the difference $\Delta \rho ^{X, Y}_\alpha := \rho _\alpha (X + Y) - \rho _\alpha (X)$ as $\alpha \rightarrow 1$, where $\rho_\alpha $ is a risk measure equipped with a confidence level parameter $0 <…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
Portfolio selection is the central task for assets management, but it turns out to be very challenging. Methods based on pattern matching, particularly the CORN-K algorithm, have achieved promising performance on several stock markets. A…
Due to their heterogeneity, insurance risks can be properly described as a mixture of different fixed models, where the weights assigned to each model may be estimated empirically from a sample of available data. If a risk measure is…
We study how network structure affects the dynamics of collateral in presence of rehypothecation. We build a simple model wherein banks interact via chains of repo contracts and use their proprietary collateral or re-use the collateral…
Modern society heavily relies on strongly connected, socio-technical systems. As a result, distinct risks threatening the operation of individual systems can no longer be treated in isolation. Consequently, risk experts are actively seeking…
This article contains the first published example of a real economic balance sheet where the Solvency II ratio substantially depends on the seed selected for the random number generator (RNG) used. The theoretical background and the main…
Financial markets are exposed to systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of…
The equivalence between multiportfolio time consistency of a dynamic multivariate risk measure and a supermartingale property is proven. Furthermore, the dual variables under which this set-valued supermartingale is a martingale are…
To a large extent, the systemic importance of financial institutions is related to the topology of financial liability networks. In this work we reconstruct and analyze the - to our knowledge - largest financial network that has been…
Solvency II Directive 2009/138/EC requires an insurance and reinsurance undertakings assessment of a Solvency Capital Requirement by means of the so-called "Standard Formula" or by means of partial or full internal models. Focusing on the…
We consider market players with tail-risk-seeking behaviour as exemplified by the S-shaped utility introduced by Kahneman and Tversky. We argue that risk measures such as value at risk (VaR) and expected shortfall (ES) are ineffective in…
The regulator is interested in proposing a capital adequacy test by specifying an acceptance set for firms' capital positions at the end of a given period. This set needs to be surplus-invariant, i.e., not to depend on the surplus of firms'…
The globalization feeded by the technology explosion that begans in the end of the last century, started the world to change faster every day. The only today's certain is the tomorrow's uncertain. Risk is defined as uncertain where one or…
In [16], a new family of vector-valued risk measures called multivariate expectiles is introduced. In this paper, we focus on the asymptotic behavior of these measures in a multivariate regular variations context. For models with equivalent…
A generalization of expectiles for d-dimensional multivariate distribution functions is introduced. The resulting geometric expectiles are unique solutions to a convex risk minimization problem and are given by d-dimensional vectors. They…
There is a growing concern in recent years over the potential formation of bubbles in the Chinese real estate market. This paper aims to conduct a series of bubble diagnostic analysis over nine representative Chinese cities from two…
When simulating a complex stochastic system, the behavior of output response depends on input parameters estimated from finite real-world data, and the finiteness of data brings input uncertainty into the system. The quantification of the…
By specifying model free preferences towards simple nested classes of lottery pairs, we develop the dual story to stand on equal footing with that of (primal) risk apportionment. The dual story provides an intuitive interpretation, and full…