Related papers: Risk Concentration and Diversification: Second-Ord…
Percolation theory characterizing the robustness of a network has applications ranging from biology, to epidemic spreading, and complex infrastructures. Percolation theory, however, only concern the typical response of a infinite network to…
We consider the problem of risk diversification of $\alpha$-stable heavy tailed risks. We study the behaviour of the aggregated Value-at-Risk, with particular reference to the impact of different tail dependence structures on the limits to…
This paper examines the dividend and investment policies of a cash constrained firm that has access to costly external funding. We depart from the literature by allowing the firm to issue collateralized debt to increase its investment in…
We introduce diversified risk parity embedded with various reward-risk measures and more generic allocation rules for portfolio construction. We empirically test the proposed reward-risk parity strategies and compare their performance with…
Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies. Despite its popularity, little attention has been paid to the statistical properties of the procedure. We…
Sparsity or complexity? In modern high-dimensional asset pricing, these are often viewed as competing principles: richer feature spaces appear to favor complexity, while economic intuition has long favored parsimony. We show that this…
We apply concepts of majorization theory to derive new insights in the field of extremal dependence structures. In particular, we consider the Rearrangement Algorithm by Puccetti and Rueschendorf, where majorization arguments yield a…
Despite the fact that the Euler allocation principle has been adopted by many financial institutions for their internal capital allocation process, a comprehensive description of Euler allocation seems still to be missing. We try to fill…
We include alignment interactions in a well-studied first-order attractive-repulsive macroscopic model for aggregation. The distinctive feature of the extended model is that the equation that specifies the velocity in terms of the…
A new notion of stochastic ordering is introduced to compare multivariate stochastic risk models with respect to extreme portfolio losses. In the framework of multivariate regular variation comparison criteria are derived in terms of…
Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source…
We provide a comprehensive analysis of the two-parameter Beta distributions seen from the perspective of second-order stochastic dominance. By changing its parameters through a bijective mapping, we work with a bounded subset D instead of…
Statistics of drawdowns (loss from the last local maximum to the next local minimum) plays an important role in risk assessment of investment strategies. As they incorporate higher ($>$ two) order correlations, they offer a better measure…
Building on recent developments in models focused on the shape properties of odds ratios, this paper introduces two new models that expand the class of available distributions while preserving specific shape characteristics of an underlying…
To achieve robustness of risk across different assets, risk parity investing rules, a particular state of risk contributions, have grown in popularity over the previous few decades. To generalize the concept of risk contribution from the…
This article proposes a new class of risk-sharing rules by exploring the relationship between capital allocation and risk sharing. While the former is concerned with ex-ante allocating capitals to different lines of business within a…
We study a static portfolio optimization problem with two risk measures: a principle risk measure in the objective function and a secondary risk measure whose value is controlled in the constraints. This problem is of interest when it is…
An asset pricing model using long-run capital share growth risk has recently been found to successfully explain U.S. stock returns. Our paper adopts a recursive preference utility framework to derive an heterogeneous asset pricing model…
In this paper, we examine the effect of background risk on portfolio selection and optimal reinsurance design under the criterion of maximizing the probability of reaching a goal. Following the literature, we adopt dependence uncertainty to…
The inf-convolution of risk measures is directly related to risk sharing and general equilibrium, and it has attracted considerable attention in mathematical finance and insurance problems. However, the theory is restricted to finite sets…