Related papers: A risk management approach to capital allocation
Practitioners sometimes suggest to use a combination of Sobol sequences and orthonormal polynomials when applying an LSMC algorithm for evaluation of option prices or in the context of risk capital calculation under the Solvency II regime.…
In this paper, we propose the multivariate range Value-at-Risk (MRVaR) and the multivariate range covariance (MRCov) as two risk measures and explore their desirable properties in risk management. In particular, we explain that such…
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
Many banks adopt the Loss Distribution Approach to quantify the operational risk capital charge under Basel II requirements. It is common practice to estimate the capital charge using the 0.999 quantile of the annual loss distribution,…
Surrender poses one of the major risks to life insurance and a sound modeling of its true probability has direct implication on the risk capital demanded by the Solvency II directive. We add to the existing literature by performing…
We provide a new characterization of second-order stochastic dominance, also known as increasing concave order. The result has an intuitive interpretation that adding a risk with negative expected value in adverse scenarios makes the…
We propose a robust risk measurement approach that minimizes the expectation of overestimation plus underestimation costs. We consider uncertainty by taking the supremum over a collection of probability measures, relating our approach to…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
Distributional reinforcement learning (RL) -- in which agents learn about all the possible long-term consequences of their actions, and not just the expected value -- is of great recent interest. One of the most important affordances of a…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
This paper studies the robust reinsurance and investment games for competitive insurers. Model uncertainty is characterized by a class of equivalent probability measures. Each insurer is concerned with relative performance under the…
Risk allocation, the decomposition of a portfolio-wide risk measure into component contributions, is a fundamental problem in financial risk management due to the non-additive nature of risk measures, the layered organizational structures…
We provide sufficient conditions for semi-nonparametric point identification of a mixture model of decision making under risk, when agents make choices in multiple lines of insurance coverage (contexts) by purchasing a bundle. As a first…
A central problem in business concerns the optimal allocation of limited resources to a set of available tasks, where the payoff of these tasks is inherently uncertain. In credit card fraud detection, for instance, a bank can only assign a…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
This work is an answer to the EIOPA 2017 report. It follows from the latter that in order to assess the potential systemic risk we should take into account the build-up of risk and in particular the risk that arises in time, as well as the…
In this article we consider the parameter risk in the context of internal modelling of the reserve risk under Solvency II. We discuss two opposed perspectives on parameter uncertainty and point out that standard methods of classical…
We introduce a way to compare actions in decision problems. One action is safer than another if the set of beliefs at which the decision-maker prefers the safer action expands as the decision-maker becomes more risk averse. We provide a…
In this paper we study the pricing and hedging problem of a portfolio of life insurance products under the benchmark approach, where the reference market is modelled as driven by a state variable following a polynomial diffusion on a…
Robust and reliable covariance estimates play a decisive role in financial and many other applications. An important class of estimators is based on Factor models. Here, we show by extensive Monte Carlo simulations that covariance matrices…