Related papers: Second Order Risk
The presence of non linear instruments is responsible for the emergence of non Gaussian features in the price changes distribution of realistic portfolios, even for Normally distributed risk factors. This is especially true for the…
Biases with respect to socially-salient attributes of individuals have been well documented in evaluation processes used in settings such as admissions and hiring. We view such an evaluation process as a transformation of a distribution of…
We propose a novel strategy for multivariate extreme value index estimation. In applications such as finance, volatility and risk present in the components of a multivariate time series are often driven by the same underlying factors, such…
The construction of an efficient portfolio with a good level of return and minimal risk depends on selecting the optimal combination of stocks. This paper introduces a novel decision-making framework for stock selection based on fractional…
Starting from the requirement that risk measures of financial portfolios should be based on their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We…
We study issues of robustness in the context of Quantitative Risk Management and Optimization. We develop a general methodology for determining whether a given risk measurement related optimization problem is robust, which we call…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
We study market-to-book ratios of stocks in the context of Stochastic Portfolio Theory. Functionally generated portfolios that depend on auxiliary economic variables other than relative capitalizations ("sizes") are developed in two ways,…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
Recent developments in deep learning techniques have motivated intensive research in machine learning-aided stock trading strategies. However, since the financial market has a highly non-stationary nature hindering the application of…
Risk statistic is a critical factor not only for risk analysis but also for financial application. However, the traditional risk statistics may fail to describe the characteristics of regulator-based risk. In this paper, we consider the…
The problem of estimation error in portfolio optimization is discussed, in the limit where the portfolio size N and the sample size T go to infinity such that their ratio is fixed. The estimation error strongly depends on the ratio N/T and…
Risk control and optimal diversification constitute a major focus in the finance and insurance industries as well as, more or less consciously, in our everyday life. We present a discussion of the characterization of risks and of the…
Financial institutions have to allocate so-called "economic capital" in order to guarantee solvency to their clients and counter parties. Mathematically speaking, any methodology of allocating capital is a "risk measure", i.e. a function…
In this research, starting from a widely accepted definition of risk, we support the idea that risk reduction is a more realistic objective than risk minimization, which represents a theoretical utopia. Furthermore, significant risk…
The second-largest order statistic is of special importance in reliability theory since it represents the time to failure of a $2$-out-of-$n$ system. Consider two $2$-out-of-$n$ systems with heterogeneous random lifetimes. The lifetimes are…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
We propose an end-to-end distributionally robust system for portfolio construction that integrates the asset return prediction model with a distributionally robust portfolio optimization model. We also show how to learn the risk-tolerance…