Related papers: A risk management approach to capital allocation
Advanced classification algorithms are being increasingly used in safety-critical applications like health-care, engineering, etc. In such applications, miss-classifications made by ML algorithms can result in substantial financial or…
Repeated history of pandemics, such as SARS, H1N1, Ebola, Zika, and COVID-19, has shown that pandemic risk is inevitable. Extraordinary shortages of medical resources have been observed in many parts of the world. Some attributing factors…
Accurate modeling of operational risk is important for a bank and the finance industry as a whole to prepare for potentially catastrophic losses. One approach to modeling operational is the loss distribution approach, which requires a bank…
We develop a cutting-plane methodology that adjusts solutions to optimization problems so as to reduce features that bring about exposure to risk, such as concentration of assets or resources. The methodology is agnostic to the…
A new framework for portfolio diversification is introduced which goes beyond the classical mean-variance approach and portfolio allocation strategies such as risk parity. It is based on a novel concept called portfolio dimensionality that…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
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…
Two-stage stochastic optimization is a framework for modeling uncertainty, where we have a probability distribution over possible realizations of the data, called scenarios, and decisions are taken in two stages: we make first-stage…
Robust ranking and selection (R&S) is an important and challenging variation of conventional R&S that seeks to select the best alternative among a finite set of alternatives. It captures the common input uncertainty in the simulation model…
The purpose of the study is to propose a methodology for evaluation and ranking of risky investment projects.An investment certainty equivalence approach dual to the conventional separation of riskless and risky contributions based on cash…
The use of recommender systems in the recruitment domain has been labeled as 'high-risk' in recent legislation. As a result, strict requirements regarding explainability and fairness have been put in place to ensure proper treatment of all…
The challenge of optimal Routing and Spectrum Assignment (RSA) is significant in Elastic Optical Networks. Integrating adaptive modulation formats into the RSA problem - Routing, Modulation Level, and Spectrum Assignment - broadens…
It is widely known that the common risk-factors derived from PCA beyond the first eigenportfolio are generally difficult to interpret and thus to use in practical portfolio management. We explore a alternative approach (HPCA) which makes…
Embedding value investment in portfolio optimization models has always been a challenge. In this paper, we attempt to incorporate it by employing principal component analysis to filter out dominant financial ratios from each sector and…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
This paper studies Pareto-optimal reinsurance design in a monopolistic market with multiple primary insurers and a single reinsurer, all with heterogeneous risk preferences. The risk preferences are characterized by a family of risk…
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…
Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss…
Based on a point of view that solvency and security are first, this paper considers regular-singular stochastic optimal control problem of a large insurance company facing positive transaction cost asked by reinsurer under solvency…
The distribution of health care payments to insurance plans has substantial consequences for social policy. Risk adjustment formulas predict spending in health insurance markets in order to provide fair benefits and health care coverage for…