Related papers: Risk, utility and sensitivity to large losses
In this paper, we study properties of certain risk measures associated with acceptance sets. These sets describe regulatory preconditions that have to be fulfilled by financial institutions to pass a given acceptance test. If the financial…
We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. We show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is…
In the financial field, precise risk assessment tools are essential for decision-making. Recent studies have challenged the notion that traditional network loss functions like Mean Square Error (MSE) are adequate, especially under extreme…
Measuring systemic risk or fragility of financial systems is a ubiquitous task of fundamental importance in analyzing market efficiency, portfolio allocation, and containment of financial contagions. Recent attempts have shown that…
We study a non-concave optimization problem in which a financial company maximizes the expected utility of the surplus under a risk-based regulatory constraint. For this problem, we consider four different prevalent risk constraints…
I show that if the capital accumulation dynamics is stochastic a new term, in addition to that given by accounting prices, has to be introduced in order to derive a correct estimate of the genuine wealth of an economy. In a simple model…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Motivated by the analysis of a general optimal portfolio selection problem, which encompasses as special cases an optimal consumption and an optimal debt-arrangement problem, we are concerned with the questions of how a personality trait…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
This paper discusses the sensitivity of the long-term expected utility of optimal portfolios for an investor with constant relative risk aversion. Under an incomplete market given by a factor model, we consider the utility maximization…
Spectral risk measures (SRMs) are risk measures that take account of user riskaversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative…
Forecasting accuracy is routinely optimised in financial prediction tasks even though investment and risk-management decisions are executed under transaction costs, market impact, capacity limits, and binding risk constraints. This paper…
We provide a new algorithm for solving Risk Sensitive Partially Observable Markov Decisions Processes, when the risk is modeled by a utility function, and both the state space and the space of observations is finite. This algorithm is based…
Shortfall systemic (multivariate) risk measures $\rho$ defined through an $N$-dimensional multivariate utility function $U$ and random allocations can be represented as classical (one dimensional) shortfall risk measures associated to an…
Motivated by optimal investment problems in mathematical finance, we consider a variational problem of Neyman-Pearson type for law-invariant robust utility functionals and convex risk measures. Explicit solutions are found for…
Under expected utility the local index of absolute risk aversion has played a central role in many applications. Besides, its link with the "global" concepts of the risk and probability premia has reinforced its attractiveness. This paper…
We consider market players with tail-risk-seeking behaviour as exemplified by the S-shaped utility introduced by Kahneman and Tversky. We argue that risk measures such as value at risk (VaR) and expected shortfall (ES) are ineffective in…
Expected Shortfall (ES), also known as superquantile or Conditional Value-at-Risk, has been recognized as an important measure in risk analysis and stochastic optimization, and is also finding applications beyond these areas. In finance, it…
We investigate optimal consumption problems for a Black-Scholes market under uniform restrictions on Value-at-Risk and Expected Shortfall for logarithmic utility functions. We find the solutions in terms of a dynamic strategy in explicit…
In economics, insurance and finance, value at risk (VaR) is a widely used measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, time horizon, and probability $\alpha$, the $100\alpha\%$ VaR is…