Related papers: Concurrent Credit Portfolio Losses
Machine learning systems increasingly depend on pipelines of multiple algorithms to provide high quality and well structured predictions. This paper argues interaction effects between clustering and prediction (e.g. classification,…
This paper lays out a principled approach to compare copula forecasts via strictly consistent scores. We first establish the negative result that, in general, copulas fail to be elicitable, implying that copula predictions cannot sensibly…
In the online portfolio optimization framework, existing learning algorithms generate strategies that yield significantly poorer cumulative wealth compared to the best constant rebalancing portfolio in hindsight, despite being consistent in…
We study the problem of multiple hypothesis testing for multidimensional data when inter-correlations are present. The problem of multiple comparisons is common in many applications. When the data is multivariate and correlated, existing…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
Understanding the dependence structure of asset returns is fundamental in risk assessment and is particularly relevant in a portfolio diversification strategy. We propose a clustering approach where evidence accumulated in a multiplicity of…
Stress testing poses a causal question: how would portfolio credit losses change if the macroeconomy followed an adverse counterfactual path? Yet standard practice remains predictive and might be therefore vulnerable to omitted-variable…
Understanding the dependence relationship of credit spreads of corporate bonds is important for risk management. Vine copula models with tail dependence are used to analyze a credit spread dataset of Chinese corporate bonds, understand the…
We investigate how the local fluctuations of the signed traded volumes affect the dependence of demands between stocks. We analyze the empirical dependence of demands using copulas and show that they are well described by a bivariate…
Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…
Flash crashes in financial markets have become increasingly important attracting attention from financial regulators, market makers as well as from the media and the broader audience. Systemic risk and propagation of shocks in financial…
Let $ X_{\lambda_1},\ldots,X_{\lambda_n}$ be dependent non-negative random variables and $Y_i=I_{p_i} X_{\lambda_i}$, $i=1,\ldots,n$, where $I_{p_1},\ldots,I_{p_n}$ are independent Bernoulli random variables independent of…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the…
We extend the Vasi\v{c}ek loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and…
Recent studies have shown that a system composed from several randomly interdependent networks is extremely vulnerable to random failure. However, real interdependent networks are usually not randomly interdependent, rather a pair of…
We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a…
The aim of this paper is to investigate the impact of rebalancing frequency and transaction costs on the log-optimal portfolio, which is a portfolio that maximizes the expected logarithmic growth rate of an investor's wealth. We prove that…
We analyze systems of agents sharing light-tailed risky claims issued by different financial objects. Assuming exponentially distributed claims, we obtain that both agents' and system's losses follow generalized exponential mixture…
We define a copula process which describes the dependencies between arbitrarily many random variables independently of their marginal distributions. As an example, we develop a stochastic volatility model, Gaussian Copula Process Volatility…