Risk Management
Consider an agent taking two successive decisions to maximize his expected utility under uncertainty. After his first decision, a signal is revealed that provides information about the state of nature. The observation of the signal allows…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
In this paper we propose a novel Bayesian methodology for Value-at-Risk computation based on parametric Product Partition Models. Value-at-Risk is a standard tool to measure and control the market risk of an asset or a portfolio, and it is…
This paper proposes a new methodology to compute Value at Risk (VaR) for quantifying losses in credit portfolios. We approximate the cumulative distribution of the loss function by a finite combination of Haar wavelets basis functions and…
Typically, operational risk losses are reported above some threshold. This paper studies the impact of ignoring data truncation on the 0.999 quantile of the annual loss distribution for operational risk for a broad range of distribution…
To meet the Basel II regulatory requirements for the Advanced Measurement Approaches in operational risk, the bank's internal model should make use of the internal data, relevant external data, scenario analysis and factors reflecting the…
Many banks adopt the Loss Distribution Approach to quantify the operational risk capital charge under Basel II requirements. It is common practice to estimate the capital charge using the 0.999 quantile of the annual loss distribution,…
In this paper we examine the claims reserving problem using Tweedie's compound Poisson model. We develop the maximum likelihood and Bayesian Markov chain Monte Carlo simulation approaches to fit the model and then compare the estimated…
To quantify an operational risk capital charge under Basel II, many banks adopt a Loss Distribution Approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank's internal…
To meet the Basel II regulatory requirements for the Advanced Measurement Approaches, the bank's internal model must include the use of internal data, relevant external data, scenario analysis and factors reflecting the business environment…
This paper was presented and written for two seminars: a national UK University Risk Conference and a Risk Management industry workshop. The target audience is therefore a cross section of Academics and industry professionals. The current…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit…
Monitoring means to observe a system for any changes which may occur over time, using a monitor or measuring device of some sort. In this paper we formulate a problem of monitoring dates of maximal risk of a financial position. Thus, the…
In an incomplete semimartingale model of a financial market, we consider several risk-averse financial agents who negotiate the price of a bundle of contingent claims. Assuming that the agents' risk preferences are modelled by convex…
In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…
This survey treats the problem of ruin in a risk model when assets earn investment income. In addition to a general presentation of the problem, topics covered are a presentation of the relevant integro-differential equations, exact and…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
We study the feasibility and noise sensitivity of portfolio optimization under some downside risk measures (Value-at-Risk, Expected Shortfall, and semivariance) when they are estimated by fitting a parametric distribution on a finite sample…
We assume that an agent's rate of consumption is {\it ratcheted}; that is, it forms a non-decreasing process. Given the rate of consumption, we act as financial advisers and find the optimal investment strategy for the agent who wishes to…
In this paper we study the asymptotic decay of finite time ruin probabilities for an insurance company that faces heavy-tailed claims, uses predictable investment strategies and makes investments in risky assets whose prices evolve…