Risk Management
Value-at-Risk (VaR) estimation at high confidence levels is inherently a rare-event problem and is particularly sensitive to tail behavior and model misspecification. This paper studies the performance of two simulation-based VaR estimation…
Systemic risk refers to the overall vulnerability arising from the high degree of interconnectedness and interdependence within the financial system. In the rapidly developing decentralized finance (DeFi) ecosystem, numerous studies have…
Outstanding claim liabilities are revised repeatedly as claims develop, yet most modern reserving models are trained as one-shot predictors and typically learn only from settled claims. We formulate individual claims reserving as a…
This paper presents a meta-learning framework for credit risk assessment of Italian Small and Medium Enterprises (SMEs) that explicitly addresses the temporal misalignment of credit scoring models. The approach aligns financial statement…
We consider the problem of an agent who faces losses in continuous time over a finite time horizon and may choose to share some of these losses with a counterparty. The agent is uncertain about the true loss distribution and has multiple…
In the face of global economic uncertainty, financial auditing has become essential for regulatory compliance and risk mitigation. Traditional manual auditing methods are increasingly limited by large data volumes, complex business…
We live in a multivariate world, and effective modeling of financial portfolios, including their construction, allocation, forecasting, and risk analysis, simply is not possible without explicitly modeling the dependence structure of their…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
In this article, we employ a principal-agent model to analyze optimal contract design in a monopolistic reinsurance market under adverse selection with a continuum of insurer types. Instead of using the classical expected utility framework,…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
Credit risk assessment increasingly relies on diverse sources of information beyond traditional structured financial data, particularly for micro and small enterprises (mSEs) with limited financial histories. This study proposes a…
Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…
Machine learning improves predictive accuracy in insurance pricing but exacerbates trade-offs between competing fairness criteria across different discrimination measures, challenging regulators and insurers to reconcile profitability with…
We propose a novel framework for risk-sensitive reinforcement learning (RSRL) that incorporates robustness against transition uncertainty. We define two distinct yet coupled risk measures: an inner risk measure addressing state and cost…
How should financial institutions hedge their balance sheets against interest rate risk when managing long-term assets and liabilities? We address this question by proposing a bond portfolio solution based on ambiguity-averse preferences,…
We create a time series model for annual returns of three asset classes: the USA Standard & Poor (S&P) stock index, the international stock index, and the USA Bank of America investment-grade corporate bond index. Using this, we made an…
Historically, financial risk management has mostly addressed risk factors that arise from the financial environment. Climate risks present a novel and significant challenge for companies and financial markets. Investors aiming for avoidance…
Risk allocation, the decomposition of a portfolio-wide risk measure into component contributions, is a fundamental problem in financial risk management due to the non-additive nature of risk measures, the layered organizational structures…
This paper presents comparison results and establishes risk bounds for credit portfolios within classes of Bernoulli mixture models, assuming conditionally independent defaults that are stochastically increasing with a common risk factor.…
Financial crises emerge when structural vulnerabilities accumulate across sectors, markets, and investor behavior. Predicting these systemic transitions is challenging because they arise from evolving interactions between market…