Related papers: Value-at-Risk substitute for non-ruin capital is f…
When the available statistical information is imperfect, it is dangerous to follow standard optimisation procedures to construct an optimal portfolio, which usually leads to a strong concentration of the weights on very few assets. We…
We consider the optimal risk transfer from an insurance company to a reinsurer. The problem formulation considered in this paper is closely connected to the optimal portfolio problem in finance, with some crucial distinctions. In…
Many of the technical complications associated with the general theory of relativity ultimately stem from the nonlinearity of Einstein's equation. It is shown here that an appropriate choice of dynamical variables may be used to eliminate…
In this paper we propose a look at the capital risk problem inspired by deterministic, known from classical mechanics, problem of juggling. We propose capital equivalents to the Newton's laws of motion and on this basis we determine the…
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…
Practical application of Reinforcement Learning (RL) often involves risk considerations. We study a generalized approximation scheme for risk measures, based on Monte-Carlo simulations, where the risk measures need not necessarily be…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
This paper proposes a new framework of algorithmic recourse (AR) that works even in the presence of missing values. AR aims to provide a recourse action for altering the undesired prediction result given by a classifier. Existing AR methods…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
Regulatory and contractual constraints on individual exposures are standard in insurance and reinsurance markets, but a poorly designed constraint can distort the economic incentives of risk-averse agents. In the unconstrained problem, the…
One purpose -- quite a few thinkers would say the main purpose -- of seeking knowledge about the world is to enhance our ability to make good decisions. An item of knowledge that can make no conceivable difference with regard to anything we…
Cost-of-capital valuation is a well-established approach to the valuation of liabilities and is one of the cornerstones of current regulatory frameworks for the insurance industry. Standard cost-of-capital considerations typically rely on…
We discuss the coherence properties of Expected Shortfall (ES) as a financial risk measure. This statistic arises in a natural way from the estimation of the "average of the 100p % worst losses" in a sample of returns to a portfolio. Here p…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
The Lambda Value-at-Risk (Lambda-VaR) is a generalization of the Value-at-Risk (VaR), which has been actively studied in quantitative finance. Over the past two decades, the Expected Shortfall (ES) has become one of the most important risk…
Pursuing a scientific idea is often justified by the promise associated with it. Philosophers of science have proposed a variety of approaches to such promise, including more specific indicators. Economic models in particular emphasise the…
In this paper, we consider a multi-objective control problem for stochastic systems that seeks to minimize a cost of interest while ensuring safety. We introduce a novel measure of safety risk using the conditional value-at-risk and a set…
Within the context of capital adequacy, we study comonotonicity of risk measures in terms of the primitives of the theory: acceptance sets and eligible, or reference, assets. We show that comonotonicity cannot be characterized by the…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
This paper proposes strategies for designing a system whose computational model is subject to aleatory and epistemic uncertainty. Aleatory variables, which are caused by randomness in physical parameters, are draws from a possibly unknown…