Related papers: Mod-Poisson approximation schemes: Applications to…
We present Causal Posterior Estimation (CPE), a novel method for Bayesian inference in simulator models, i.e., models where the evaluation of the likelihood function is intractable or too computationally expensive, but where one can…
The valuation of over-the-counter derivatives is subject to a series of valuation adjustments known as xVA, which pose additional risks for financial institutions. Associated risk measures, such as the value-at-risk of an underlying…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
We study the estimation of a high dimensional approximate factor model in the presence of both cross sectional dependence and heteroskedasticity. The classical method of principal components analysis (PCA) does not efficiently estimate the…
In this paper we provide a rigorous mathematical foundation for continuous approximations of a class of systems with piece-wise continuous functions. By using techniques from the theory of differential inclusions, the underlying piece-wise…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
Monte Carlo and Quasi-Monte Carlo methods present a convenient approach for approximating the expected value of a random variable. Algorithms exist to adaptively sample the random variable until a user defined absolute error tolerance is…
Searching for new effective risk factors on stock returns is an important research topic in asset pricing. Factor modeling is an active research topic in statistics and econometrics, with many new advances. However, these new methods have…
The challenge to measure exposures regularly forces financial institutions into a choice between an overwhelming computational burden or oversimplification of risk. To resolve this unsettling dilemma, we systematically investigate replacing…
The value-at-risk of a delta-gamma approximated derivatives portfolio can be computed by numerical integration of the characteristic function. However, while the choice of parameters in any numerical integration scheme is paramount, in…
We consider the problem of estimating the probability of a large loss from a financial portfolio, where the future loss is expressed as a conditional expectation. Since the conditional expectation is intractable in most cases, one may…
We propose a projection method to estimate risk-neutral moments from option prices. We derive a finite-sample bound implying that the projection estimator attains (up to a constant) the smallest pricing error within the span of traded…
In this paper, we use the framework of mod-$\phi$ convergence to prove precise large or moderate deviations for quite general sequences of real valued random variables $(X_{n})_{n \in \mathbb{N}}$, which can be lattice or non-lattice…
In this paper we discuss $\l$-policy iteration, a method for exact and approximate dynamic programming. It is intermediate between the classical value iteration (VI) and policy iteration (PI) methods, and it is closely related to optimistic…
We consider the problem of simulating loss probabilities and conditional excesses for linear asset portfolios under the t-copula model. Although in the literature on market risk management there are papers proposing efficient variance…
Estimating and assessing the risk of a large portfolio is an important topic in financial econometrics and risk management. The risk is often estimated by a substitution of a good estimator of the volatility matrix. However, the accuracy of…
This paper introduces a new semi-parametric approach to the pricing and risk management of bespoke CDO tranches, with a particular attention to bespokes that need to be mapped onto more than one reference portfolio. The only user input in…
In this paper we analyze and compare the use of Monte Carlo, Quasi-Monte Carlo and hybrid Monte Carlo-methods in the credit risk management system Credit Metrics by J.P.Morgan. We show that hybrid sequences used for simulations, in a…
In this paper we propose a novel algorithm, factored value iteration (FVI), for the approximate solution of factored Markov decision processes (fMDPs). The traditional approximate value iteration algorithm is modified in two ways. For one,…
In this paper we present a novel approach towards variance reduction for discretised diffusion processes. The proposed approach involves specially constructed control variates and allows for a significant reduction in the variance for the…