Related papers: Multivariate risk measures: a constructive approac…
Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…
Systemic risk measures are crucial for the stability of financial markets, yet classical formulations fail to capture the complexity of market volatility. We propose a new framework for systemic risk measurement on the variable-exponent…
The problem of finding the optimal portfolio for investors is called the portfolio optimization problem. Such problem mainly concerns the expectation and variability of return (i.e., mean and variance). Although the variance would be the…
We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
We pick up the regime switching model for asset returns introduced by Rogers and Zhang. The calibration involves various markets including implied volatility in order to gain additional predictive power. We focus on the calculation of risk…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
We provide analytical results for a static portfolio optimization problem with two coherent risk measures. The use of two risk measures is motivated by joint decision-making for portfolio selection where the risk perception of the portfolio…
It is well known that a random vector with given marginal distributions is comonotonic if and only if it has the largest sum with respect to the convex order [ Kaas, Dhaene, Vyncke, Goovaerts, Denuit (2002), A simple geometric proof that…
We consider finite-horizon Markov Decision Processes where parameters, such as transition probabilities, are unknown and estimated from data. The popular distributionally robust approach to addressing the parameter uncertainty can sometimes…
In the paper, we use and investigate copulas models to represent multivariate dependence in financial time series. We propose the algorithm of risk measure computation using copula models. Using the optimal mean-$CVaR$ portfolio we compute…
This paper studies the optimal consumption under the addictive habit formation preference in markets with transaction costs and unbounded random endowments. To model the proportional transaction costs, we adopt the Kabanov's multi-asset…
We quantify model risk of a financial portfolio whereby a multi-period mean-standard-deviation criterion is used as a selection criterion. In this work, model risk is defined as the loss due to uncertainty of the underlying distribution of…
The purpose of this paper is to utilize statistical methodologies to infer from market prices of assets and their derivatives the magnitude of the set of a measure M that defines acceptance sets of risky future cash flows. Specifically, we…
This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…
Capital allocation principles are used in various contexts in which a risk capital or a cost of an aggregate position has to be allocated among its constituent parts. We study capital allocation principles in a performance measurement…
This paper motivates the views that for complex systems, risk should be controlled by enforcing constraints in a modular way at different system levels, that the constraints can be expressed as assurance contracts and that acceptable risk…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit, more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex…
This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by…