Related papers: Static marginal expected shortfall: Systemic risk …
In auto insurance, a Bonus-Malus System (BMS) is commonly used as a posteriori risk classification mechanism to set the premium for the next contract period based on a policyholder's claim history. Even though recent literature reports…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
Starting from the requirement that risk measures of financial portfolios should be based on their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We…
This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the…
Despite the simplicity and intuitive interpretation of Minimum Mean Squared Error (MMSE) estimators, their effectiveness in certain scenarios is questionable. Indeed, minimizing squared errors on average does not provide any form of…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
We consider an optimal investment and risk control problem for an insurer under the mean-variance (MV) criterion. By introducing a deterministic auxiliary process defined forward in time, we formulate an alternative time-consistent problem…
We study risk-aware linear policy approximations for the optimal operation of an energy system with stochastic wind power, storage, and limited fuel. The resulting problem is a sequential decision-making problem with rolling forecasts. In…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
We introduce the concept of an extremely negatively dependent (END) sequence of random variables with a given common marginal distribution. The END structure, as a new benchmark for negative dependence, is comparable to comonotonicity and…
We present the Shortfall Deviation Risk (SDR), a risk measure that represents the expected loss that occurs with certain probability penalized by the dispersion of results that are worse than such an expectation. SDR combines Expected…
Understanding variable dependence, particularly eliciting their statistical properties given a set of covariates, provides the mathematical foundation in practical operations management such as risk analysis and decision-making given…
In the framework of Embedded Value new standards, namely the MCEV norms, the latest principles published in June 2008 address the issue of market and underwriting risks measurement by using stochastic models of projection and valorization.…
Bank crisis is challenging to define but can be manifested through bank contagion. This study presents a comprehensive framework grounded in nonlinear time series analysis to identify potential early warning signals (EWS) for impending…
We present an historical overview about the connections between the analysis of risk and the control of autonomous systems. We offer two main contributions. Our first contribution is to propose three overlapping paradigms to classify the…
A load sharing system has several components and the failure of one component can affect the lifetime of the surviving components. Since component failure does not equate to system failure for different system designs, the analysis of the…
The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…
Systematic investment strategies are exposed to a subtle but pervasive vulnerability: the progressive erosion of their effectiveness as market regimes change. Traditional risk measures, designed to capture volatility or drawdowns, overlook…
In financial risk management, Value at Risk (VaR) is widely used to estimate potential portfolio losses. VaR's limitation is its inability to account for the magnitude of losses beyond a certain threshold. Expected Shortfall (ES) addresses…
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…