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Constant Proportion Portfolio Insurance (CPPI) is an investment strategy designed to give participation in the performance of a risky asset while protecting the invested capital. This protection is however not perfect and the gap risk must…
We propose a novel conditional diffusion model for contextual portfolio optimization that learns the cross-sectional distribution of next-day stock returns conditioned on high-dimensional asset-specific factors. Our model leverages a…
In recent years, quantitative investment methods combined with artificial intelligence have attracted more and more attention from investors and researchers. Existing related methods based on the supervised learning are not very suitable…
Bayesian analysis often concerns an evaluation of models with different dimensionality as is necessary in, for example, model selection or mixture models. To facilitate this evaluation, transdimensional Markov chain Monte Carlo (MCMC)…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
We propose a structural default model for portfolio-wide valuation adjustments (xVAs) and represent it as a system of coupled backward stochastic differential equations. The framework is divided into four layers, each capturing a key…
We propose a top-down model for cash CLO. This model can consistently price cash CLO tranches both within the same deal and across different deals. Meaningful risk measures for cash CLO tranches can also be defined and computed. This method…
The mean-variance portfolio model, based on the risk-return trade-off for optimal asset allocation, remains foundational in portfolio optimization. However, its reliance on restrictive assumptions about asset return distributions limits its…
The valuation of over-the-counter derivatives is subject to a series of valuation adjustments known as xVA, which pose additional risks for financial institutions. Associated risk measures, such as the value-at-risk of an underlying…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We investigate multi-period mean-risk portfolio optimization for long-horizon Defined Contribution plans, focusing on buffered Probability of Exceedance (bPoE), a more intuitive, dollar-based alternative to Conditional Value-at-Risk (CVaR).…
Even in the simple one-factor credit portfolio model that underlies the Basel II regulatory capital rules coming into force in 2007, the exact contributions to credit value-at-risk can only be calculated with Monte-Carlo simulation or with…
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…
In this article, we propose a new numerical approach to high-dimensional partial differential equations (PDEs) arising in the valuation of exotic derivative securities. The proposed method is extended from Reisinger and Wittum (2007) and…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
Propose a deep learning driven multi factor investment model optimization method for risk control. By constructing a deep learning model based on Long Short Term Memory (LSTM) and combining it with a multi factor investment model, we…
In multi-source learning with discrete labels, distributional heterogeneity across domains poses a central challenge to developing predictive models that transfer reliably to unseen domains. We study multi-source unsupervised domain…
We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity…
We propose a portfolio allocation method based on risk factor budgeting using convex Nonnegative Matrix Factorization (NMF). Unlike classical factor analysis, PCA, or ICA, NMF ensures positive factor loadings to obtain interpretable…
The rough Bergomi (rBergomi) model, introduced recently in [5], is a promising rough volatility model in quantitative finance. It is a parsimonious model depending on only three parameters, and yet remarkably fits with empirical implied…