Risk Management
The theory of acceptance sets and their associated risk measures plays a key role in the design of capital adequacy tests. The objective of this paper is to investigate, in the context of bounded financial positions, the class of…
We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on…
A risk of small defined-benefit pension schemes is that there are too few members to eliminate idiosyncratic mortality risk, that is there are too few members to effectively pool mortality risk. This means that when there are few members in…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
Many immunization strategies have been proposed to prevent infectious viruses from spreading through a network. In this study, we propose efficient immunization strategies to prevent a default contagion that might occur in a financial…
We propose a Markov chain model for credit rating changes. We do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process. The parameters of the model are estimated…
We study capital requirements for bounded financial positions defined as the minimum amount of capital to invest in a chosen eligible asset targeting a pre-specified acceptability test. We allow for general acceptance sets and general…
The inverse first passage time problem asks whether, for a Brownian motion $B$ and a nonnegative random variable $\zeta$, there exists a time-varying barrier $b$ such that $\mathbb{P}\{B_s>b(s),0\leq s\leq t\}=\mathbb{P}\{\zeta>t\}$. We…
We characterize when a convex risk measure associated to a law-invariant acceptance set in $L^\infty$ can be extended to $L^p$, $1\leq p<\infty$, preserving finiteness and continuity. This problem is strongly connected to the statistical…
When estimating the risk of a P&L from historical data or Monte Carlo simulation, the robustness of the estimate is important. We argue here that Hampel's classical notion of qualitative robustness is not suitable for risk measurement and…
Standard economic theory makes an allowance for the agency problem, but not the compounding of moral hazard in the presence of informational opacity, particularly in what concerns high-impact events in fat tailed domains (under slow…
We use a simple agent based model of value investors in financial markets to test three credit regulation policies. The first is the unregulated case, which only imposes limits on maximum leverage. The second is Basle II and the third is a…
We introduce a model in which a regulator employs mechanism design to embed her human capital beta signal(s) in a firm's capital structure, in order to enhance the value of her post career change indexed executive stock option contract with…
Within the Own Risk and Solvency Assessment framework, the Solvency II directive introduces the need for insurance undertakings to have efficient tools enabling the companies to assess the continuous compliance with regulatory solvency…
PD curve calibration refers to the transformation of a set of rating grade level probabilities of default (PDs) to another average PD level that is determined by a change of the underlying portfolio-wide PD. This paper presents a framework…
Systematic and multifactor risk models are revisited via methods which were already successfully developed in signal processing and in automatic control. The results, which bypass the usual criticisms on those risk modeling, are illustrated…
We develop algorithms for the numerical computation of the quadratic hedging strategy in incomplete markets modeled by pure jump Markov process. Using the Hamilton-Jacobi-Bellman approach, the value function of the quadratic hedging problem…
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a…
In this paper we study a class of insurance products where the policy holder has the option to insure $k$ of its annual Operational Risk losses in a horizon of $T$ years. This involves a choice of $k$ out of $T$ years in which to apply the…
In this paper we study the stochastic area swept by a regular time-homogeneous diffusion till a stopping time. This unifies some recent literature in this area. Through stochastic time change we establish a link between the stochastic area…