Related papers: Reverse stress testing via multivariate modeling w…
This study outlines a comprehensive methodology utilizing copulas to discern inconsistencies in the behavior exhibited by pairs of financial assets. It introduces a robust approach to establishing the interrelationship between the returns…
We introduce a new goodness-of-fit test for regular vine (R-vine) copula models. R-vine copulas are a very flexible class of multivariate copulas based on a pair-copula construction (PCC). The test arises from the information matrix…
Several collective risk models have recently been proposed by relaxing the widely used but controversial assumption of independence between claim frequency and severity. Approaches include the bivariate copula model, random effect model,…
In this paper, we consider the situation under a life test, in which the failure time of the test units are not related deterministically to an observable stochastic time varying covariate. In such a case, the joint distribution of failure…
Computing risk measures of a financial portfolio comprising thousands of derivatives is a challenging problem because (a) it involves a nested expectation requiring multiple evaluations of the loss of the financial portfolio for different…
Classical and more recent tests for detecting distributional changes in multivariate time series often lack power against alternatives that involve changes in the cross-sectional dependence structure. To be able to detect such changes…
In recent years, conditional copulas, that allow dependence between variables to vary according to the values of one or more covariates, have attracted increasing attention. In high dimension, vine copulas offer greater flexibility compared…
Vine copulas, constructed using bivariate copulas as building blocks, provide a flexible framework for modeling multi-dimensional dependencies. However, this flexibility is accompanied by rapidly increasing complexity as dimensionality…
Financial markets typically exhibit dynamically complex properties as they undergo continuous interactions with economic and environmental factors. The Efficient Market Hypothesis indicates a rich difference in the structural complexity of…
We propose a new method for the determination of the weight factor for the simulated tempering method. In this method a short replica-exchange simulation is performed and the simulated tempering weight factor is obtained by the…
In this paper we introduce a novel approach to risk estimation based on nonlinear factor models - the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. Its…
Use copula to model dependency of variable extends multivariate gaussian assumption. In this paper we first empirically studied copula regression model with continous response. Both simulation study and real data study are given. Secondly…
Financial crises are usually associated with increased cross-sectional dependence between asset returns, causing asymmetry between the lower and upper tail of return distribution. The detection of asymmetric dependence is now understood to…
In this paper, probabilistic guarantees for constraint sampling of multistage robust convex optimization problems are derived. The dynamic nature of these problems is tackled via the so-called scenario-with-certificates approach. This…
Nested stochastic modeling has been on the rise in many fields of the financial industry. Such modeling arises whenever certain components of a stochastic model are stochastically determined by other models. There are at least two main…
The Multiplicative Error Model (Engle (2002)) for nonnegative valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with nonnegative support. A multivariate extension allows…
Prior to the financial crisis mortgage securitization models increased in sophistication as did products built to insure against losses. Layers of complexity formed upon a foundation that could not support it and as the foundation crumbled…
This paper studies multivariate Value-at-Risk (VaR) for financial portfolios with a focus on modeling dependence structures through Archimedean copulas. Using the generator representation of Archimedean copulas, we derive explicit…
Assessing the resilience of the economy requires accounting for its intrinsic multi-layer nature, by assessing for instance how disruptions at the firm level spread through the production network and propagate to the banking sector. Methods…
We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…