Related papers: Risk measures based on target risk profiles
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
This paper addresses risk awareness of stochastic optimization problems. Nested risk measures appear naturally in this context, as they allow beneficial reformulations for algorithmic treatments. The reformulations presented extend usual…
Monetary risk measures are usually interpreted as the smallest amount of external capital that must be added to a financial position to make it acceptable. We propose a new concept: intrinsic risk measures and argue that this approach…
Accounting for model uncertainty in risk management and option pricing leads to infinite dimensional optimization problems which are both analytically and numerically intractable. In this article we study when this hurdle can be overcome…
This paper deals with multidimensional dynamic risk measures induced by conditional $g$-expectations. A notion of multidimensional $g$-expectation is proposed to provide a multidimensional version of nonlinear expectations. By a technical…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
This paper compares the accuracy of tail risk forecasts with a focus on including realized skewness and kurtosis in "additive" and "multiplicative" models. Utilizing a panel of 960 US stocks, we conduct diagnostic tests, employ scoring…
Scenario generation is the construction of a discrete random vector to represent parameters of uncertain values in a stochastic program. Most approaches to scenario generation are distribution-driven, that is, they attempt to construct a…
Capital allocation is a procedure used to assess the risk contributions of individual risk components to the total risk of a portfolio. While the conditional tail expectation (CTE)-based capital allocation is arguably the most popular…
A new model framework called Realized Conditional Autoregressive Expectile (Realized-CARE) is proposed, through incorporating a measurement equation into the conventional CARE model, in a manner analogous to the Realized-GARCH model.…
Credit ratings are widely used by investors as a screening device. We introduce and study several natural notions of risk consistency that promote prudent investment decisions in the framework of Choquet rating criteria. Three closely…
Systemic risk is receiving increasing attention in the insurance industry. In this paper, we propose a multi-dimensional L\'{e}vy process-based renewal risk model with heterogeneous insurance claims, where every dimension indicates a…
The aim of this paper is to provide several examples of convex risk measures necessary for the application of the general framework for portfolio theory of Maier-Paape and Zhu, presented in Part I of this series (arXiv:1710.04579…
We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…
This paper investigates an optimal investment problem under the tail Value at Risk (tail VaR, also known as expected shortfall, conditional VaR, average VaR) and portfolio insurance constraints confronted by a defined-contribution pension…
In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
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 proposes RiskRank as a joint measure of cyclical and cross-sectional systemic risk. RiskRank is a general-purpose aggregation operator that concurrently accounts for risk levels for individual entities and their…