Related papers: Drawdown: From Practice to Theory and Back Again
In the last five years, expected shortfall (ES) and stressed ES (SES) have become key required regulatory measures of market risk in the banking sector, especially following events such as the global financial crisis. Thus, finding ways to…
We study the aggregation of two risks when the marginal distributions are known and the dependence structure is unknown, under the additional constraint that one risk is smaller than or equal to the other. Risk aggregation problems with the…
We use supervised learning to identify factors that predict the cross-section of returns and maximum drawdown for stocks in the US equity market. Our data run from January 1970 to December 2019 and our analysis includes ordinary least…
Expected Shortfall (ES) is a coherent measure of tail risk that captures the average loss beyond a quantile threshold. Despite the growing literature on ES regression conditional on covariates, no existing work considers ES modeling in…
We address the problem that classical risk measures may not detect the tail risk adequately. This can occur for instance due to averaging when calculating the Expected Shortfall. The current literature proposes the so-called adjusted…
Given a finite collection of stochastic alternatives, we study the problem of sequentially allocating a fixed sampling budget to identify the optimal alternative with a high probability, where the optimal alternative is defined as the one…
We consider the classic Kelly gambling problem with general distribution of outcomes, and an additional risk constraint that limits the probability of a drawdown of wealth to a given undesirable level. We develop a bound on the drawdown…
The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…
Risk contagion concerns any entity dealing with large scale risks. Suppose (X,Y) denotes a risk vector pertaining to two components in some system. A relevant measurement of risk contagion would be to quantify the amount of influence of…
This paper explores the statistical properties of forming constrained optimal portfolios within a high-dimensional set of assets. We examine portfolios with tracking error constraints, those with simultaneous tracking error and weight…
We study the properties of Expected Shortfall from the point of view of financial risk management. This measure --- which emerges as a natural remedy in some cases where Value at Risk (VaR) is not able to distinguish portfolios which bear…
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…
Machine learning plays an essential role in preventing financial losses in the banking industry. Perhaps the most pertinent prediction task that can result in billions of dollars in losses each year is the assessment of credit risk (i.e.,…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
Expected risk minimization (ERM) is at the core of many machine learning systems. This means that the risk inherent in a loss distribution is summarized using a single number - its average. In this paper, we propose a general approach to…
It is well known that Expected Shortfall (also called Average Value-at-Risk) is a convex risk measure, i. e. Expected Shortfall of a convex linear combination of arbitrary risk positions is not greater than a convex linear combination with…
We review the dynamics of the returns of Leveraged Exchange Traded Funds (LETFs) and propose a new measure of realized volatility: Shortfall from Maximum Convexity. We show that SMC has a more intuitive interpretation and provides more…
In this paper, we investigate risk measures such as value at risk (VaR) and the conditional tail expectation (CTE) of the extreme (maximum and minimum) and the aggregate (total) of two dependent risks. In finance, insurance and the other…
We consider a diffusion risk model where proportional reinsurance can be bought. In order to stabilise the surplus process, one tries to keep the drawdown, that is the difference of the surplus to its historical maximum, in an interval…
We pose the decumulation strategy for a Defined Contribution (DC) pension plan as a problem in optimal stochastic control. The controls are the withdrawal amounts and the asset allocation strategy. We impose maximum and minimum constraints…