Related papers: Generalized asset pricing: Expected Downside Risk-…
The projection pursuit regression (PPR) has played an important role in the development of statistics and machine learning. However, when compared to other established methods like random forests (RF) and support vector machines (SVM), PPR…
We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and…
In this paper, we consider the basic problem of portfolio construction in financial engineering, and analyze how market-based and analytical approaches can be combined to obtain efficient portfolios. As a first step in our analysis, we…
We study dynamic pricing of a product with an unknown demand distribution over a finite horizon. Departing from the standard no-regret learning environment in which prices can be adjusted at any time, we restrict price changes to…
Value at risk and expected shortfall are increasingly popular tail risk measures in the financial risk management field. Both academia and financial institutions are working to improve tail risk forecasts in order to meet the requirements…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common…
In statistical exercises where there are several candidate models, the traditional approach is to select one model using some data driven criterion and use that model for estimation, testing and other purposes, ignoring the variability of…
We propose a projected gradient dynamical system as a model for a bargaining scheme for an asset for which the two interested agents have personal valuations which do not initially coincide. The personal valuations are formed using…
This paper addresses estimates of climate risk embedded within a bank credit portfolio. The proposed Climate Extended Risk Model (CERM) adapts well known credit risk models and makes it possible to calculate incremental credit losses on a…
Value-at-Risk (VaR) and Expected Shortfall (ES) are widely used in the financial sector to measure the market risk and manage the extreme market movement. The recent link between the quantile score function and the Asymmetric Laplace…
In portfolio analysis, the traditional approach of replacing population moments with sample counterparts may lead to suboptimal portfolio choices. I show that optimal portfolio weights can be estimated using a machine learning (ML)…
Average forecast accuracy is not the same as forecast reliability. I treat forecast loss differentials relative to a benchmark as a return series. I then evaluate these returns using risk-adjusted performance measures from finance,…
In this paper, we study the exponential utility indifference pricing of pure endowment policies within a stochastic-factor model for an insurer who also invests in a financial market. Our framework incorporates a hazard rate modeled as an…
The paper studies an oligopolistic equilibrium model of financial agents who aim to share their random endowments. The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all…
A semi-parametric joint Value-at-Risk (VaR) and Expected Shortfall (ES) forecasting framework employing multiple realized measures is developed. The proposed framework extends the realized exponential GARCH model to be semi-parametrically…
This paper presents a novel approach to stochastic economic model predictive control (SEMPC) that minimizes average economic cost while satisfying an empirical expected shortfall (EES) constraint to manage risk. A new scenario-based problem…
This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the…
Capital allocation is a procedure for quantifying the contribution of each source of risk to aggregated risk. The gradient allocation rule, also known as the Euler principle, is a prevalent rule of capital allocation under which the…
Most work in mechanism design assumes that buyers are risk neutral; some considers risk aversion arising due to a non-linear utility for money. Yet behavioral studies have established that real agents exhibit risk attitudes which cannot be…