Related papers: Risk, utility and sensitivity to large losses
We consider the problems of estimation and optimization of two popular convex risk measures: utility-based shortfall risk (UBSR) and Optimized Certainty Equivalent (OCE) risk. We extend these risk measures to cover possibly unbounded random…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
This paper studies an optimal consumption problem for a loss-averse agent with reference to past consumption maximum. To account for loss aversion on relative consumption, an S-shaped utility is adopted that measures the difference between…
This paper attempts to provide a decision-theoretic foundation for the measurement of economic tail risk, which is not only closely related to utility theory but also relevant to statistical model uncertainty. The main result is that the…
We analyze the performance of RiskMetrics, a widely used methodology for measuring market risk. Based on the assumption of normally distributed returns, the RiskMetrics model completely ignores the presence of fat tails in the distribution…
We introduce a new regression method that relates the mean of an outcome variable to covariates, under the "adverse condition" that a distress variable falls in its tail. This allows to tailor classical mean regressions to adverse…
Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss…
Standard uniform convergence results bound the generalization gap of the expected loss over a hypothesis class. The emergence of risk-sensitive learning requires generalization guarantees for functionals of the loss distribution beyond the…
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
This paper examines an optimal investment problem in a continuous-time (essentially) complete financial market with a finite horizon. We deal with an investor who behaves consistently with principles of Cumulative Prospect Theory, and whose…
A contraction analysis of risk-sensitive Riccati equations is proposed. When the state-space model is reachable and observable, a block-update implementation of the risk-sensitive filter is used to show that the N-fold composition of the…
In the hypothesis of rare loss events, the general expression of the policy value has been determined as a functional of the "expected frequency / loss severity" function and of the retention function. Exponential disutility has been chosen…
In performative prediction, predictions guide decision-making and hence can influence the distribution of future data. To date, work on performative prediction has focused on finding performatively stable models, which are the fixed points…
Strong empirical evidence from laboratory experiments, and more recently from population surveys, shows that individuals, when evaluating their situations, pay attention to whether they experience gains or losses, with losses weighing more…
We study the sensitivity to estimation error of portfolios optimized under various risk measures, including variance, absolute deviation, expected shortfall and maximal loss. We introduce a measure of portfolio sensitivity and test the…
Typically, operational risk losses are reported above a threshold. Fitting data reported above a constant threshold is a well known and studied problem. However, in practice, the losses are scaled for business and other factors before the…
Approximations of functions with finite data often do not respect certain "structural" properties of the functions. For example, if a given function is non-negative, a polynomial approximation of the function is not necessarily also…
In decision making under uncertainty and risk, worst-case risk assessments are often conducted using maxitive monetary risk measures. In this article, we study maxitive monetary risk measures on the space $L^0$ of all random variables…
This study utilised the dynamics of five time-varying models to estimate six essential features of financial return volatility that are relevant for robust risk management. These features include pronounced persistence, mean reversion,…