Related papers: Risk Without Return
This paper focuses on the developing of high-dimensional risk models to construct portfolios of securities in the US stock exchange. Investors seek to gain the highest profits and lowest risk in capital markets. We have developed various…
This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
It is customary that when security prices fully reflect all available information, the markets for those securities are said to be efficient. And if markets are inefficient, investors can use available information ignored by the market to…
We present four methods of assessing the diversification potential within a stock market, two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a…
Diversification is usually viewed as a reliable way to reduce risk, yet it can dramatically fail for heavy-tailed losses with infinite mean: pooling independent losses of this type may increase tail risk at every threshold. We study this…
We study the risk criterion for investments based on the drawdown from the maximal value of the capital in the past. Depending on investor's risk attitude, thus his risk exposure, we find that the distribution of these drawdowns follows a…
Dynamic hedging is the practice of periodically transacting financial instruments to offset the risk caused by an investment or a liability. Dynamic hedging optimization can be framed as a sequential decision problem; thus, Reinforcement…
We develop a general theory of risk measures that determines the optimal amount of capital to raise and invest in a portfolio of reference traded securities in order to meet a pre-specified regulatory requirement. The distinguishing feature…
We study the single-period portfolio selection problem under Constant Relative Risk-Aversion (CRRA) utility through the information-theoretic lens. Assuming only that the market payoff vector has finite support, we show that the…
Based on a faithful representation of the heavy tail multivariate distribution of asset returns introduced previously (Sornette et al., 1998, 1999) that we extend to the case of asymmetric return distributions, we generalize the return-risk…
We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government…
In finance, sequential decision problems are often faced, for which reinforcement learning (RL) emerges as a promising tool for optimisation without the need of analytical tractability. However, the objective of classical RL is the expected…
In this research, starting from a widely accepted definition of risk, we support the idea that risk reduction is a more realistic objective than risk minimization, which represents a theoretical utopia. Furthermore, significant risk…
This paper explores asset pricing implications of unemployment risk from sectoral shifts. I proxy for this risk using cross-industry dispersion (CID), defined as a mean absolute deviation of returns of 49 industry portfolios. CID peaks…
We present an approach to the dynamic valuation of exposure risks in the multi-period setting, which incorporates a dynamic and multiple diversification of risks in Pareto optimal sense. This approach extends classical indifference premium…
CRRA utility where the risk aversion coefficient is a constant is commonly seen in various economics models. But wealth-driven risk aversion rarely shows up in investor's investment problems. This paper mainly focus on numerical solutions…
We define and develop an approach for risk budgeting allocation - a risk diversification portfolio strategy - where risk is measured using a dynamic time-consistent risk measure. For this, we introduce a notion of dynamic risk contributions…
We study a fully funded, collective defined-contribution (DC) pension system with multiple overlapping generations. We investigate whether the welfare of participants can be improved by intergenerational risk sharing (IRS) implemented with…
In order to properly manage risk, practitioners must understand the aggregate risks they are exposed to. Additionally, to properly price policies and calculate bonuses the relative riskiness of individual business units must be well…