Related papers: How dark is the dark side of diversification?
Value-at-Risk (VaR) is an institutional measure of risk favored by financial regulators. VaR may be interpreted as a quantile of future portfolio values conditional on the information available, where the most common quantile used is 95%.…
Common asset holding by financial institutions, namely portfolio overlap, is nowadays regarded as an important channel for financial contagion with the potential to trigger fire sales and thus severe losses at the systemic level. In this…
Spillover of economic outcomes often arises over multiple networks, and distinguishing their separate roles is important in empirical research. For example, the direction of spillover between two groups (such as banks and industrial sectors…
We introduce new mathematical methods to study the optimal portfolio size of investment portfolios over time, considering investors with varying skill levels. First, we explore the benefit of portfolio diversification on an annual basis for…
Using Monte Carlo simulation to calculate the Value at Risk (VaR) as a possible risk measure requires adequate techniques. One of these techniques is the application of a compound distribution for the aggregates in a portfolio. In this…
The popular systemic risk measure CoVaR (conditional Value-at-Risk) and its variants are widely used in economics and finance. In this article, we propose joint dynamic forecasting models for the Value-at-Risk (VaR) and CoVaR. The CoVaR…
This research article analyses and demonstrates the hidden implications for fairness of seemingly neutral data coupled with powerful technology, such as machine learning (ML), using Open Banking as an example. Open Banking has ignited a…
Risk management is a prominent issue in peer-to-peer lending. An investor may naturally reduce his risk exposure by diversifying instead of putting all his money on one loan. In that case, an investor may want to minimize the Value-at-Risk…
The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Risk-only investment strategies have been growing in popularity as traditional in- vestment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First,…
We study the problem of finding the worst-case joint distribution of a set of risk factors given prescribed multivariate marginals and a nonlinear loss function. We show that when the risk measure is CVaR, and the distributions are…
The study of systemic risk is often presented through the analysis of several measures referring to quantities used by practitioners and policy makers. Almost invariably, those measures evaluate the size of the impact that exogenous events…
We report on time-varying network connectedness within three banking systems: North America, the EU, and ASEAN. The original method by Diebold and Yilmaz is improved by using exponentially weighted daily returns and ridge regularization on…
We present four methods of assessing the diversification potential within a stock market, two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a…
The Great Recession highlighted the role of financial and uncertainty shocks as drivers of business cycle fluctuations. However, the fact that uncertainty shocks may affect economic activity by tightening financial conditions makes…
In this study, we address the challenge of portfolio optimization, a critical aspect of managing investment risks and maximizing returns. The mean-CVaR portfolio is considered a promising method due to today's unstable financial market…
Motivated by the recently experienced systemic shocks (the COVID-19 pandemic and the full-fledged Russia's war of aggression against Ukraine) - that have created new forms of uncertainties to our supplies - this paper explores the supply…
Measuring systemic risk or fragility of financial systems is a ubiquitous task of fundamental importance in analyzing market efficiency, portfolio allocation, and containment of financial contagions. Recent attempts have shown that…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…