Related papers: How dark is the dark side of diversification?
Conditional value-at-risk (CVaR) precisely characterizes the influence that rare, catastrophic events can exert over decisions. Such characterizations are important for both normal decision-making and for psychiatric conditions such as…
The task of designing secure software systems is fraught with uncertainty, as data on uncommon attacks is limited, costs are difficult to estimate, and technology and tools are continually changing. Consequently, experts may interpret the…
The Diversification Quotient (DQ), introduced by Han et al. (2025), is a recently proposed measure of portfolio diversification that quantifies the reduction in a portfolio's risk-level parameter attributable to diversification. Grounded in…
Recent developments in the global liberalization of equity and currency markets, coupled to advances in trading technologies, are making markets increasingly interdependent. This increased fluidity raises questions about the stability of…
The problem of finding the optimal portfolio for investors is called the portfolio optimization problem. Such problem mainly concerns the expectation and variability of return (i.e., mean and variance). Although the variance would be the…
Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…
Strategies aimed at reducing the negative effects of long-term uncertainty and risk are common in biology, game theory, and finance, even if they entail a cost in terms of mean benefit. Here, we focus on the single mutant's invasion of a…
The international financial system is currently not yet prepared to face a foreseeable crisis mainly motivated by the dichotomy between the real economy and the virtual economy. Skepticism is widespread even when it comes to investments in…
We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard…
Weather parametric insurance relies on weather indices rather than actual loss assessments, enhancing claims efficiency, reducing moral hazard, and improving fairness. In the context of increasing climate change risks, despite growing…
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
We present a limits-to-arbitrage model to study the impact of securitization, leverage and credit risk protection on the cyclicity of bank credit. In a stable bank credit situation, no cycles of credit expansion or contraction appear.…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
In addition to constraining bilateral exposures of financial institutions, there are essentially two options for future financial regulation of systemic risk (SR): First, financial regulation could attempt to reduce the financial fragility…
Portfolio underdiversification is one of the most costly losses accumulated over a household's life cycle. We provide new evidence on the impact of financial inclusion services on households' portfolio choice and investment efficiency using…
We study a simple, solvable model that allows us to investigate effects of credit contagion on the default probability of individual firms, in both portfolios of firms and on an economy wide scale. While the effect of interactions may be…
We consider a model of a simple financial system consisting of a leveraged investor that invests in a risky asset and manages risk by using Value-at-Risk (VaR). The VaR is estimated by using past data via an adaptive expectation scheme. We…
In this paper, we assess how the stability of financial networks is affected by interconnectedness considering its tiniest variation: the edge. We compute the impact of edges as the percentage difference in the systemic risk (SR) of the…