Related papers: Reverse stress testing via multivariate modeling w…

Stress testing poses a causal question: how would portfolio credit losses change if the macroeconomy followed an adverse counterfactual path? Yet standard practice remains predictive and might be therefore vulnerable to omitted-variable…

Regulatory stress tests have become one of the main tools for setting capital requirements at the largest U.S. banks. The Federal Reserve uses confidential models to evaluate bank-specific outcomes for bank-specific portfolios in shared…

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…

Stress testing refers to the application of adverse financial or macroeconomic scenarios to a portfolio. For this purpose, financial or macroeconomic risk factors are linked with asset returns, typically via a factor model. We expand the…

We introduce a new goodness-of-fit test for regular vine (R-vine) copula models, a flexible class of multivariate copulas based on a pair-copula construction (PCC). The test arises from the information matrix ratio. The corresponding test…

Quantile regression, that is the prediction of conditional quantiles, has steadily gained importance in statistical modeling and financial applications. The authors introduce a new semiparametric quantile regression method based on…

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…

The study of times to nonterminal events of different types and their interrelation is a compelling area of interest. The primary challenge in analyzing such multivariate event times is the presence of informative censoring by the terminal…

Nested simulation is a natural approach to tackle nested estimation problems in operations research and financial engineering. The outer-level simulation generates outer scenarios and the inner-level simulations are run in each outer…

Multivariate volatility modeling and forecasting are crucial in financial economics. This paper develops a copula-based approach to model and forecast realized volatility matrices. The proposed copula-based time series models can capture…

The increasing penetration of renewable energy along with the variations of the loads bring large uncertainties in the power system states that are threatening the security of power system planning and operation. Facing these challenges,…

Copulas. We study the model risk of multivariate risk models in a comprehensive empirical study on Copula-GARCH models used for forecasting Value-at-Risk and Expected Shortfall. To determine whether model risk inherent in the forecasting of…

We propose a dependence-aware predictive modeling framework for multivariate risks stemmed from an insurance contract with bundling features - an important type of policy increasingly offered by major insurance companies. The bundling…

This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…

Thanks to their ability to capture complex dependence structures, copulas are frequently used to glue random variables into a joint model with arbitrary marginal distributions. More recently, they have been applied to solve statistical…

We consider the portfolio optimization with risk measured by conditional value-at-risk, based on the stress event of chosen asset being equal to the opposite of its value-at-risk level, under the normality assumption. Solvability conditions…

Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is…

Common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis. We develop a network approach to the amplification of financial contagion due to the combination of overlapping…

Testing the simplifying assumption in high-dimensional vine copulas is a difficult task. Tests must be based on estimated observations and check constraints on high-dimensional distributions. So far, corresponding tests have been limited to…

Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One…