Related papers: Reduced Form Capital Optimization
The largest US banks are required by regulatory mandate to estimate the operational risk capital they must hold using an Advanced Measurement Approach (AMA) as defined by the Basel II/III Accords. Most use the Loss Distribution Approach…
Financial portfolios are often optimized for maximum profit while subject to a constraint formulated in terms of the Conditional Value-at-Risk (CVaR). This amounts to solving a linear problem. However, in its original formulation this…
Firms should keep capital to offer sufficient protection against the risks they are facing. In the insurance context methods have been developed to determine the minimum capital level required, but less so in the context of firms with…
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic…
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…
Optimal portfolio allocation is often formulated as a constrained risk problem, where one aims to minimize a risk measure subject to some performance constraints. This paper presents new Bayesian Optimization algorithms for such constrained…
Multistage risk-averse optimal control problems with nested conditional risk mappings are gaining popularity in various application domains. Risk-averse formulations interpolate between the classical expectation-based stochastic and minimax…
This paper studies a systemic risk control problem by the central bank, which dynamically plans monetary supply to stabilize the interbank system with borrowing and lending activities. Facing both heterogeneity among banks and the common…
In this paper, as a first step in examining the properties of a feasible portfolio subset that is characterized by budget and risk constraints, we assess the maximum and minimum of the investment concentration using replica analysis. To do…
We consider optimal allocation problems with Conditional Value-At-Risk (CVaR) constraint. We prove, under very mild assumptions, the convergence of the Sample Average Approximation method (SAA) applied to this problem, and we also exhibit a…
In this paper, we propose a predictor-corrector type Consensus Based Optimization (CBO) algorithm on a convex feasible set. Our proposed algorithm generalizes the CBO algorithm in [11] to tackle a constrained optimization problem for the…
Financial institutions are currently required to meet more stringent capital requirements than they were before the recent financial crisis; in particular, the capital requirement for a large bank's trading book under the Basel 2.5 Accord…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
We study a counterfactual mean-variance optimization, where the mean and variance are defined as functionals of counterfactual distributions. The optimization problem defines the optimal resource allocation under various constraints in a…
We study paycheck optimization, which examines how to allocate income in order to achieve several competing financial goals. For paycheck optimization, a quantitative methodology is missing, due to a lack of a suitable problem formulation.…
Optimization problems with the objective function in the form of weighted sum and linear equality constraints are considered. Given that the number of local cost functions can be large as well as the number of constraints, a stochastic…
We introduce capital flow constraints, loss of good will and loan to the lot sizing problem. Capital flow constraint is different from traditional capacity constraints: when a manufacturer launches production, its present capital should not…
This paper studies the optimal dividend problem with capital injection under the constraint that the cumulative dividend strategy is absolutely continuous. We consider an open problem of the general spectrally negative case and derive the…
Attempts to allocate capital across a selection of different investments are often hampered by the fact that investors' decisions are made under limited information (no historical return data) and during an extremely limited timeframe.…
The work explores a specific scenario for structural computational optimization based on the following elements: (a) a relaxed optimization setting considering the ersatz (bi-material) approximation, (b) a treatment based on a nonsmoothed…