Related papers: ESG Risk: Lessons Learned from Utility Theory
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two dimensional space…
Expected Shortfall (ES) has been widely accepted as a risk measure that is conceptually superior to Value-at-Risk (VaR). At the same time, however, it has been criticised for issues relating to backtesting. In particular, ES has been found…
The contour maps of the error of historical resp. parametric estimates for large random portfolios optimized under the risk measure Expected Shortfall (ES) are constructed. Similar maps for the sensitivity of the portfolio weights to small…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
We propose a risk measurement approach for a risk-averse stochastic problem. We provide results that guarantee that our problem has a solution. We characterize and explore the properties of the argmin as a risk measure and the minimum as a…
In our previous paper, "A Unified Approach to Systemic Risk Measures via Acceptance Set" (\textit{Mathematical Finance, 2018}), we have introduced a general class of systemic risk measures that allow for random allocations to individual…
We develop a general theory of risk measures that determines the optimal amount of capital to raise and invest in a portfolio of reference traded securities in order to meet a pre-specified regulatory requirement. The distinguishing feature…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
In this work, we explore the possibility of utilizing transfer learning techniques to address the financial portfolio optimization problem. We introduce a novel concept called "transfer risk", within the optimization framework of transfer…
Incorporating environmental, social, and governance (ESG) considerations into systematic investments has drawn numerous attention recently. In this paper, we focus on the ESG events in financial news flow and exploring the predictive power…
Risk measures such as Expected Shortfall (ES) and Value-at-Risk (VaR) have been prominent in banking regulation and financial risk management. Motivated by practical considerations in the assessment and management of risks, including…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio…
Despite decades of research in risk management, most of the literature has focused on scalar risk measures (like e.g. Value-at-Risk and Expected Shortfall). While such scalar measures provide compact and tractable summaries, they provide a…
We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability…
Utility-Based Shortfall Risk (UBSR) is a risk metric that is increasingly popular in financial applications, owing to certain desirable properties that it enjoys. We consider the problem of estimating UBSR in a recursive setting, where…
Transfer learning is an emerging and popular paradigm for utilizing existing knowledge from previous learning tasks to improve the performance of new ones. In this paper, we propose a novel concept of transfer risk and and analyze its…
A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
This paper enhances the pricing of derivatives as well as optimal control problems to a level comprising risk. We employ nested risk measures to quantify risk, investigate the limiting behavior of nested risk measures within the classical…