Related papers: Some properties of Euler capital allocation
In this paper, we address risk aggregation and capital allocation problems in the presence of dependence between risks. The dependence structure is defined by a mixed Bernstein copula which represents a generalization of the well-known…
In this paper, we revisit the relationship between investors' utility functions and portfolio allocation rules. We derive portfolio allocation rules for asymmetric Laplace distributed $ALD(\mu,\sigma,\kappa)$ returns and compare them with…
We propose a new class of monetary risk measures for assessing financial and ESG risk. The construction is based on classical shortfall risk measures with loss function replaced by a multi-attribute utility function. We present an extensive…
Using Monte Carlo simulation to calculate the Value at Risk (VaR) as a possible risk measure requires adequate techniques. One of these techniques is the application of a compound distribution for the aggregates in a portfolio. In this…
Risk sensitive decision making finds important applications in current day use cases. Existing risk measures consider a single or finite collection of random variables, which do not account for the asymptotic behaviour of underlying…
In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…
This paper proposes a new methodology to compute Value at Risk (VaR) for quantifying losses in credit portfolios. We approximate the cumulative distribution of the loss function by a finite combination of Haar wavelets basis functions and…
This research presents a framework for quantitative risk management in volatile markets, specifically focusing on expectile-based methodologies applied to the FTSE 100 index. Traditional risk measures such as Value-at-Risk (VaR) have…
The ability to make optimal decisions under uncertainty remains important across a variety of disciplines from portfolio management to power engineering. This generally implies applying some safety margins on uncertain parameters that may…
Value at risk (VaR) and expected shortfall (ES) are common high quantile-based risk measures adopted in financial regulations and risk management. In this paper, we propose a tail risk measure based on the most probable maximum size of risk…
The Markov chain Monte Carlo method is a versatile tool in statistical physics to evaluate multi-dimensional integrals numerically. For the method to work effectively, we must consider the following key issues: the choice of ensemble, the…
It is a widely observed phenomenon that wealth is distributed significantly more unequal than wages. In this paper we study this phenomenon using a new extension of P\'olyas urn, modelling wealth growth through wages and capital returns. We…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
This paper concerns sequential computation of risk measures for financial data and asks how, given a risk measurement procedure, we can tell whether the answers it produces are `correct'. We draw the distinction between `external' and…
We introduce a new actuarial tail-shape index, the $\theta$-index, based on a probability equal level relationship between Value at Risk and Expected Shortfall. The index is defined at each tail probability level as the parameter value for…
Portfolio optimization has long been dominated by covariance-based strategies, such as the Markowitz Mean-Variance framework. However, these approaches often fail to ensure a balanced risk structure across assets, leading to concentration…
In this paper, we are concerned with the optimization of a dynamic investment portfolio when the securities which follow a multivariate Merton model with dependent jumps are periodically invested and proceed by approximating the…
We propose a portfolio approach for operational risk quantification based on a class of analytical models from which we derive new results on the correlation problem. In particular, we show that uniform correlation is a robust assumption…
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…
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…