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In this paper we consider the problem of model choice for a set of insurance loss ratios. We use a reversible jump algorithm for our model discrimination and show how the vanilla reversible jump algorithm can be improved on using recent…
Using Monte Carlo simulation to calculate the Value at Risk (VaR) as a possible risk measure requires adequate techniques. One of these techniques is the application of a compound distribution for the aggregates in a portfolio. In this…
Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes…
We propose a random walk model of asset returns where the parameters depend on market stress. Stress is measured by, e.g., the value of an implied volatility index. We show that model parameters including standard deviations and…
Pricing extremely long-dated liabilities market consistently deals with the decline in liquidity of financial instruments on long maturities. The aim is to quantify the uncertainty of rates up to maturities of a century. We assume that the…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard…
The Total Portfolio Approach and Strategic Asset Allocation are widely viewed as competing frameworks for institutional portfolio management. We argue they differ in a single governance parameter: the tracking error constraint. Using U.S.…
Central Banks interventions are frequent in response to exogenous events with direct implications on financial market volatility. In this paper, we introduce the Asymmetric Jump Multiplicative Error Model (AJM), which accounts for a…
We study logistic regression with total variation penalty on the canonical parameter and show that the resulting estimator satisfies a sharp oracle inequality: the excess risk of the estimator is adaptive to the number of jumps of the…
We develop an averaging approach to robust risk measurement under payoff uncertainty. Instead of taking a worst-case value over an uncertainty neighborhood, we weight nearby payoffs more heavily under a chosen metric and average the…
For a risk vector $V$, whose components are shared among agents by some random mechanism, we obtain asymptotic lower and upper bounds for the individual agents' exposure risk and the aggregated risk in the market. Risk is measured by…
Measuring systemic risk or fragility of financial systems is a ubiquitous task of fundamental importance in analyzing market efficiency, portfolio allocation, and containment of financial contagions. Recent attempts have shown that…
A system is considered, which is subject to external and possibly fatal shocks, with dependence between the fatality of a shock and the system age. Apart from these shocks, the system suffers from competing soft and sudden failures, where…
A scenario in which regulators take the drastic step of requiring coverage of all venture bank investment loans using interbank borrowed funds is considered. In this scenario, a minimal amount of default insurance is used, such that Tier 1…
In this article we extend earlier work on the jump-diffusion risk-sensitive asset management problem [SIAM J. Fin. Math. (2011) 22-54] by allowing jumps in both the factor process and the asset prices, as well as stochastic volatility and…
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
This paper is concerned with the maximum principle and dynamic programming principle for mean-variance portfolio selection of jump diffusions and their relationship. First, the optimal portfolio and efficient frontier of the problem are…
Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two parameters and…
Risk management is very important for individual investors or companies. There are many ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a…