Related papers: Tail Risk Constraints and Maximum Entropy
The existence of large and extreme claims of a non-life insurance portfolio influences the ability of (re)insurers to estimate the reserve. The excess over-threshold method provides a way to capture and model the typical behaviour of…
This paper investigates performance attribution measures as a basis for constraining portfolio optimization. We employ optimizations that minimize expected tail loss and investigate both asset allocation (AA) and the selection effect (SE)…
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
Value at risk (VaR) and expected shortfall (ES) are common high quantile-based risk measures adopted in financial regulations and risk management. In this paper, we propose a tail risk measure based on the most probable maximum size of risk…
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This…
Many management decisions involve accumulated random realizations for which only the first and second moments of their distribution are available. The sharp Chebyshev-type bound for the tail probability and Scarf bound for the expected loss…
The masses of data now available have opened up the prospect of discovering weak signals using machine-learning algorithms, with a view to predictive or interpretation tasks. As this survey of recent results attempts to show, bringing…
In this paper we consider the problem of computing tail probabilities of the distribution of a random sum of positive random variables. We assume that the individual variables follow a reproducible natural exponential family (NEF)…
Wrong-way risk in counterparty and funding exposures is most dramatic in the situations of systemic crises and tails events. A consistent model of wrong-way risk (WWR) is developed here with the probability-weighted addition of tail events…
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…
There is an increasing interest to understand the dependence structure of a random vector not only in the center of its distribution but also in the tails. Extreme-value theory tackles the problem of modelling the joint tail of a…
Probabilistic forecasts comprehensively describe the uncertainty in the unknown future outcome, making them essential for decision making and risk management. While several methods have been introduced to evaluate probabilistic forecasts,…
What do binary (or probabilistic) forecasting abilities have to do with overall performance? We map the difference between (univariate) binary predictions, bets and "beliefs" (expressed as a specific "event" will happen/will not happen) and…
Applying a modification of Extreme value Theory (thanks to a dual distribution technique by the authors on data over the past 2,500 years, we show that pandemics are extremely fat-tailed in terms of fatalities, with a marked potentially…
In this paper, I present a completely new type of upper and lower bounds on the right-tail probabilities of continuous random variables with unbounded support and with semi-bounded support from the left. The presented upper and lower…
The estimation of loss distributions for dynamic portfolios requires the simulation of scenarios representing realistic joint dynamics of their components. We propose a novel data-driven approach for simulating realistic, high-dimensional…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
Capital allocation is a procedure used to assess the risk contributions of individual risk components to the total risk of a portfolio. While the conditional tail expectation (CTE)-based capital allocation is arguably the most popular…
Expectiles define the only law-invariant, coherent and elicitable risk measure apart from the expectation. The popularity of expectile-based risk measures is steadily growing and their properties have been studied for independent data, but…
The mutual fund industry manages about a quarter of the assets in the U.S. stock market and thus plays an important role in the U.S. economy. The question of how much control is concentrated in the hands of the largest players is best…