Related papers: Correlation scenarios and correlation stress testi…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…
Given multivariate time series, we study the problem of forming portfolios with maximum mean reversion while constraining the number of assets in these portfolios. We show that it can be formulated as a sparse canonical correlation analysis…
How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to…
This paper proposes a method for generating typical scenarios based on system-level macroscopic characteristics of power system and considering its stability properties. First, considering uncertainties such as renewable energy generation…
Simulating sample correlation matrices is important in many areas of statistics. Approaches such as generating Gaussian data and finding their sample correlation matrix or generating random uniform $[-1,1]$ deviates as pairwise correlations…
We provide analytical results for a static portfolio optimization problem with two coherent risk measures. The use of two risk measures is motivated by joint decision-making for portfolio selection where the risk perception of the portfolio…
Over the last century, risk scores have been the most popular form of predictive model used in healthcare and criminal justice. Risk scores are sparse linear models with integer coefficients; often these models can be memorized or placed on…
We present a novel methodology to quantify the "impact" of and "response" to market shocks. We apply shocks to a group of stocks in a part of the market, and we quantify the effects in terms of average losses on another part of the market…
We study the dynamics of correlation and variance in systems under the load of environmental factors. A universal effect in ensembles of similar systems under the load of similar factors is described: in crisis, typically, even before…
This paper introduces a novel approach to financial risk analysis that does not rely on traditional price and market data, instead using market news to model assets as distributions over a metric space of risk factors. By representing asset…
We compare some methods recently used in the literature to detect the existence of a certain degree of common behavior of stock returns belonging to the same economic sector. Specifically, we discuss methods based on random matrix theory…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
Portfolio optimization is a critical task in investment. Most existing portfolio optimization methods require information on the distribution of returns of the assets that make up the portfolio. However, such distribution information is…
Marginal structural models have been increasingly used by analysts in recent years to account for confounding bias in studies with time-varying treatments. The parameters of these models are often estimated using inverse probability of…
We introduce a faithful representation of the heavy tail multivariate distribution of asset returns, as parsimonous as the Gaussian framework. Using calculation techniques of functional integration and Feynman diagrams borrowed from…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
We introduce a dynamic optimization framework to analyze optimal portfolio allocations within an information driven contagious distress model. The investor allocates his wealth across several stocks whose growth rates and distress…
In this work, inspired by the Archer-Mouy-Selmi approach, we present two methodologies for scoring the stress test scenarios used by CCPs for sizing their Default Funds. These methodologies can be used by risk managers to compare different…
In the paper portfolio optimization over long run risk sensitive criterion is considered. It is assumed that economic factors which stimulate asset prices are ergodic but non necessarily uniformly ergodic. Solution to suitable Bellman…
We consider the problems of hypothesis testing and model comparison under a flexible Bayesian linear regression model whose formulation is closely connected with the linear mixed effect model and the parametric models for SNP set analysis…