Related papers: Capital allocation and risk appetite under Solvenc…
We formulate banks' capital optimization problem as a classic mean variance optimization, by leveraging an accurate linear approximation to the Shapely or Constrained Aumann-Shapley (CAS) allocation of max or nested max cost functions. This…
The article's aim is to provide a solution to the equity premium puzzle with a derived model. The derived model which depends on Consumption Capital Asset Pricing Model gives a solution to the puzzle with the values of coefficient of…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
I propose a functional on the space of spectral risk measures that quantifies their ``degree of risk aversion''. This quantification formalizes the idea that some risk measures are ``more risk-averse'' than others. I construct the…
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk implements an asymptotic single risk factor (ASRF) model. Measurements from the ASRF model of the prevailing state of Australia's economy and the level…
In this study, we introduce new estimation methods for the required rate of returns on equity and liabilities of private and public companies using the stochastic dividend discount model (DDM). To estimate the required rate of return on…
From SA-CCR to RSA-CCR: making SA-CCR self-consistent and appropriately risk-sensitive by cashflow decomposition in a 3-Factor Gaussian Market Model
We consider robust resource allocation of services in Clouds. More specifically, we consider the case of a large public or private Cloud platform that runs a relatively small set of large and independent services. These services are…
In this research, starting from a widely accepted definition of risk, we support the idea that risk reduction is a more realistic objective than risk minimization, which represents a theoretical utopia. Furthermore, significant risk…
In this paper we propose a new multiple criteria decision aiding method to deal with sorting problems in which alternatives are evaluated on criteria structured in a hierarchical way and presenting interactions. The underlying preference…
This paper introduces a novel approach to addressing uncertainty and associated risks in power system management, focusing on the discrepancies between forecasted and actual values of load demand and renewable power generation. By employing…
We study the risk criterion for investments based on the drawdown from the maximal value of the capital in the past. Depending on investor's risk attitude, thus his risk exposure, we find that the distribution of these drawdowns follows a…
This study develops and analyzes an optimization model of smart contract adoption under bounded risk, linking structural theory with simulation and real-world validation. We examine how adoption intensity alpha is structurally pinned at a…
This paper examines the dividend and investment policies of a cash constrained firm that has access to costly external funding. We depart from the literature by allowing the firm to issue collateralized debt to increase its investment in…
In this paper, we investigate the robust optimal reinsurance,investment,and internal surplus distribution (i.e., consumption) problem for an insurer with Epstein-Zin recursive preferences in an incomplete market. It is assumed that the…
We consider an illiquid financial market with different regimes modeled by a continuous-time finite-state Markov chain. The investor can trade a stock only at the discrete arrival times of a Cox process with intensity depending on the…
The level dependent Choquet integral has been proposed to handle decision making problems in which the importance and the interaction of criteria may depend on the level of the alternatives' evaluations. This integral is based on a level…
Modern portfolio theory has provided for decades the main framework for optimizing portfolios. Because of its sensitivity to small changes in input parameters, especially expected returns, the mean-variance framework proposed by Markowitz…
To meet the Basel II regulatory requirements for the Advanced Measurement Approaches, the bank's internal model must include the use of internal data, relevant external data, scenario analysis and factors reflecting the business environment…
A risk measure that is consistent with the second-order stochastic dominance and additive for sums of independent random variables can be represented as a weighted entropic risk measure (WERM). The expected utility maximization problem with…