Related papers: ESG Risk: Lessons Learned from Utility Theory
Stock portfolio optimization is the process of continuous reallocation of funds to a selection of stocks. This is a particularly well-suited problem for reinforcement learning, as daily rewards are compounding and objective functions may…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Risk and utility functionals are fundamental building blocks in economics and finance. In this paper we investigate under which conditions a risk or utility functional is sensitive to the accumulation of losses in the sense that any…
In this short paper we introduce a new class of performance measures based on certainty equivalents defined via scaled utility functions. We analyse their properties, show that the corresponding portfolio optimization problem is well-posed…
We address the problem that classical risk measures may not detect the tail risk adequately. This can occur for instance due to averaging when calculating the Expected Shortfall. The current literature proposes the so-called adjusted…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…
We discuss the coherence properties of Expected Shortfall (ES) as a financial risk measure. This statistic arises in a natural way from the estimation of the "average of the 100p % worst losses" in a sample of returns to a portfolio. Here p…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
ESG ratings provide a quantitative measure for socially responsible investment. We present a unified framework for incorporating numeric ESG ratings into dynamic pricing theory. Specifically, we introduce an ESG-valued return that is a…
We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance under an ESG score mandate. If a negative ESG premium is priced in the market, this mandate can…
The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and…
We study the properties of Expected Shortfall from the point of view of financial risk management. This measure --- which emerges as a natural remedy in some cases where Value at Risk (VaR) is not able to distinguish portfolios which bear…
In this work we propose deep learning-based algorithms for the computation of systemic shortfall risk measures defined via multivariate utility functions. We discuss the key related theoretical aspects, with a particular focus on the…
The Expected Shortfall (ES) is one of the most important regulatory risk measures in finance, insurance, and statistics, which has recently been characterized via sets of axioms from perspectives of portfolio risk management and statistics.…
This paper proposes a novel class of generalized Expected-Shortfall (ES) norms constructed via distortion risk measures, establishing a unified analytical framework for risk quantification. The proposed norms extend conventional ES…
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…
This paper proposes an expected multivariate utility analysis for ESG investors in which green stocks, brown stocks, and a market index are modeled in a one-factor, CAPM-type structure. This setting allows investors to accommodate their…
Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for…
A key issue in the estimation of energy hedges is the hedgers' attitude towards risk which is encapsulated in the form of the hedgers' utility function. However, the literature typically uses only one form of utility function such as the…