Related papers: Risk Premia: Asymmetric Tail Risks and Excess Retu…
In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance under an ESG score mandate. If a negative ESG premium is priced in the market, this mandate can…
Based on a recent theorem due to the authors, it is shown how the extreme tail dependence between an asset and a factor or index or between two assets can be easily calibrated. Portfolios constructed with stocks with minimal tail dependence…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
Many novel notions of "risk" (e.g., CVaR, tilted risk, DRO risk) have been proposed and studied, but these risks are all at least as sensitive as the mean to loss tails on the upside, and tend to ignore deviations on the downside. We study…
We consider the problem of risk diversification of $\alpha$-stable heavy tailed risks. We study the behaviour of the aggregated Value-at-Risk, with particular reference to the impact of different tail dependence structures on the limits to…
Measures of risk concentration and their asymptotic behavior for portfolios with heavy-tailed risk factors is of interest in risk management. Second order regular variation is a structural assumption often imposed on such risk factors to…
In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial…
This paper studies a continuous-time portfolio selection problem under a general distribution of random risk aversion (RRA). We provide a complete characterization of all deterministic equilibrium strategies in closed form. Our results show…
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…
We look at optimal liability-driven portfolios in a family of fat-tailed and extremal risk measures, especially in the context of pension fund and insurance fixed cashflow liability profiles, but also those arising in derivatives books such…
Extreme values and the tail behavior of probability distributions are essential for quantifying and mitigating risk in complex systems of all kinds. In multivariate settings, accounting for correlations is crucial. Although extreme value…
We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most…
I introduce a model-free methodology to assess the impact of disaster risk on the market return. Using S&P500 returns and the risk-neutral quantile function derived from option prices, I employ quantile regression to estimate local…
Traditional risk-adjusted returns, such as the Treynor, Sharpe, Sortino, and Information ratios, have been pivotal in portfolio asset allocation, focusing on minimizing risk while maximizing profit. Nevertheless, these metrics often fail to…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
We introduce a new actuarial tail-shape index, the $\theta$-index, based on a probability equal level relationship between Value at Risk and Expected Shortfall. The index is defined at each tail probability level as the parameter value for…
This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is…
Roy's `Safety First' criterion for selecting one risky asset from many is adapted to the case of non-normal returns, via Cornish Fisher expansion. The resulting investment objective is consistent with first order stochastic dominance, and…
In this paper, we propose a novel frequency-severity joint trip-level risk index that combines the frequency of abnormal driving patterns with a severity component reflecting how extreme such behavior is relative to a portfolio-level…