Related papers: Analytical Framework for Credit Portfolios. Part I…

It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…

We introduce a neural network approach for assessing the risk of a portfolio of assets and liabilities over a given time period. This requires a conditional valuation of the portfolio given the state of the world at a later time, a problem…

We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the…

Following several episodes of financial market turmoil in recent decades, changes in systemic risk have drawn growing attention. Therefore, we propose surveillance schemes for systemic risk, which allow to detect misspecified systemic risk…

Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…

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…

There is a great number of factors to take into account when building and managing an investment portfolio. It is widely believed that a proper set-up of the portfolio combined with a good, robust management strategy is the key to…

We provide a simple method to estimate the parameters of multivariate stochastic volatility models with latent factor structures. These models are very useful as they alleviate the standard curse of dimensionality, allowing the number of…

In this paper, we are concerned with the optimization of a dynamic investment portfolio when the securities which follow a multivariate Merton model with dependent jumps are periodically invested and proceed by approximating the…

Monte Carlo experiments produce samples in order to estimate features of a given distribution. However, simultaneous estimation of means and quantiles has received little attention, despite being common practice. In this setting we…

We discuss suitable classes of diffusion processes, for which functionals relevant to finance can be computed via Monte Carlo methods. In particular, we construct exact simulation schemes for processes from this class. However, should the…

Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…

This paper covers a massive acceleration of Monte-Carlo based pricing method for financial products and financial derivatives. The method is applicable in risk management settings, where a financial product has to be priced under a number…

The relationship between set-valued risk measures for processes and vectors on the optional filtration is investigated. The equivalence of risk measures for processes and vectors and the equivalence of their penalty function formulations…

We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…

We present a quantum algorithm that analyzes risk more efficiently than Monte Carlo simulations traditionally used on classical computers. We employ quantum amplitude estimation to evaluate risk measures such as Value at Risk and…

We introduce an additive stochastic mortality model which allows joint modelling and forecasting of underlying death causes. Parameter families for mortality trends can be chosen freely. As model settings become high dimensional, Markov…

Designing dynamic portfolio insurance strategies under market conditions switching between two or more regimes is a challenging task in financial economics. Recently, a promising approach employing the value-at-risk (VaR) measure to assign…

In this paper we discuss a general methodology to compute the market risk measure over long time horizons and at extreme percentiles, which are the typical conditions needed for estimating Economic Capital. The proposed approach extends the…

In this paper, we propose the multivariate range Value-at-Risk (MRVaR) and the multivariate range covariance (MRCov) as two risk measures and explore their desirable properties in risk management. In particular, we explain that such…