Related papers: The Calculus of Expected Loss: Backtesting Paramet…
Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for…
Expected Shortfall (ES) is the average return on a risky asset conditional on the return being below some quantile of its distribution, namely its Value-at-Risk (VaR). The Basel III Accord, which will be implemented in the years leading up…
While the estimation of risk is an important question in the daily business of banking and insurance, many existing plug-in estimation procedures suffer from an unnecessary bias. This often leads to the underestimation of risk and…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
Expected Shortfall (ES) in several variants has been proposed as remedy for the defi-ciencies of Value-at-Risk (VaR) which in general is not a coherent risk measure. In fact, most definitions of ES lead to the same results when applied to…
A variety of different performance metrics are commonly used in the machine learning literature for the evaluation of classification systems. Some of the most common ones for measuring quality of hard decisions are standard and balanced…
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient…
This paper establishes the first analytical relationship between predictive model performance and loss ratio in insurance pricing. We derive a closed-form formula connecting the Pearson correlation between predicted and actual losses to…
In this paper, we are interested in evaluating the resilience of financial portfolios under extreme economic conditions. Therefore, we use empirical measures to characterize the transmission process of macroeconomic shocks to risk…
Banks are required to use long-term default probabilities (PDs) of their portfolios when calculating credit risk capital under internal ratings-based (IRB) models. However, the calibration models and historical data typically reflect…
This paper is concerned with forecast error, particularly in relation to loss reserving. This is generally regarded as consisting of three components, namely parameter, process and model errors. The first two of these components, and their…
The entropic risk measure is widely used in high-stakes decision-making across economics, management science, finance, and safety-critical control systems because it captures tail risks associated with uncertain losses. However, when data…
As an effective nonparametric method, empirical likelihood (EL) is appealing in combining estimating equations flexibly and adaptively for incorporating data information. To select important variables and estimating equations in the sparse…
For credit risk management purposes in general, and for allocation of regulatory capital by banks in particular (Basel II), numerical assessments of the credit-worthiness of borrowers are indispensable. These assessments are expressed in…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…
Value-at-risk (VaR) and expected shortfall (ES) are two commonly utilized metrics for quantifying financial risk. In this study, we review the widely employed Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models. These…
The Expected Shortfall (ES) is one of the most important regulatory risk measures in finance, insurance, and statistics, which has recently been characterized via sets of axioms from perspectives of portfolio risk management and statistics.…
Risk measures such as Expected Shortfall (ES) and Value-at-Risk (VaR) have been prominent in banking regulation and financial risk management. Motivated by practical considerations in the assessment and management of risks, including…
The failure rate function plays an important role in studying the lifetime distributions in reliability theory and life testing models. A study of the general failure rate model $r(t)=a+bt^{\theta-1}$, under squared error loss function…
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…