Related papers: Correlation scenarios and correlation stress testi…

In this paper, an optimization problem with uncertain constraint coefficients is considered. Possibility theory is used to model the uncertainty. Namely, a joint possibility distribution in constraint coefficient realizations, called…

Researchers have widely used accelerated life tests to determine an optimal inspection plan for lot acceptance. All such plans are proposed by assuming a known relationship between the lifetime characteristic(s) and the accelerating stress…

We study the construction and rebalancing of sparse index-tracking portfolios from an operational research perspective, with explicit emphasis on uncertainty quantification and implementability. The decision variables are portfolio weights…

In the aftermath of the financial crisis, supervisory authorities have considerably altered the mode of operation of financial stress testing. Despite these efforts, significant concerns and extensive criticism have been raised by market…

As a sequel to a recent work we consider the generalized stress concentration factor, a purely geometric property of a body that for the various external loading fields indicates the worst ratio between the maximum of the optimal stress and…

We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers…

We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…

The comovement phenomenon in financial markets creates decision scenarios with positively correlated asset returns. This paper addresses covariance matrix estimation under such conditions, motivated by observations of significant positive…

We give a detailed account of correlations between credit sector/quality and treasury curve factors, using the robust framework of the Barclays POINT Global Risk Model. Consistent with earlier studies, we find a strong negative correlation…

In this article we consider a simple step stress set up under the cumulative exposure model assumption. At each stress level the lifetime distribution of the experimental units are assumed to follow the generalized exponential distribution.…

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…

Earlier studies have shown that stock market distributions can be well described by distributions derived from Tsallis entropy, which is a generalization of Shannon entropy to non-extensive systems. In this paper, Tsallis relative entropy…

Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…

Contagion arising from clustering of multiple time series like those in the stock market indicators can further complicate the nature of volatility, rendering a parametric test (relying on asymptotic distribution) to suffer from issues on…

This paper introduces a new risk-on risk-off strategy for the stock market, which combines a financial stress indicator with a sentiment analysis done by ChatGPT reading and interpreting Bloomberg daily market summaries. Forecasts of market…

Supply chains' increasing globalization and complexity have recently produced unpredictable disruptions, ripple effects, and cascading resulting failures. Proposed practices for managing these concerns include the advanced field of forward…

In a very high-dimensional vector space, two randomly-chosen vectors are almost orthogonal with high probability. Starting from this observation, we develop a statistical factor model, the random factor model, in which factors are chosen at…

We propose a nonparametric procedure to test for changes in correlation matrices at an unknown point in time. The new test requires only mild assumptions on the serial dependence structure and has considerable power in finite samples. We…

This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and…

Income and risk coexist, yet investors are often so focused on chasing high returns that they overlook the potential risks that can lead to high losses. Therefore, risk forecasting and risk control is the cornerstone of investment. To…