Related papers: ESG Risk: Lessons Learned from Utility Theory

Sustainable Investing identifies the approach of investors whose aim is twofold: on the one hand, they want to achieve the best compromise between portfolio risk and return, but they also want to take into account the sustainability of…

We designed a machine learning algorithm that identifies patterns between ESG profiles and financial performances for companies in a large investment universe. The algorithm consists of regularly updated sets of rules that map regions into…

We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…

In this paper we find tight sufficient conditions for the continuity of the value of the utility maximization problem from terminal wealth with respect to the convergence in distribution of the underlying processes. We also establish a weak…

This paper is mainly a survey of recent research developments regarding methods for risk minimization in financial markets modeled by It\^o-L\'evy processes, but it also contains some new results on the underlying stochastic maximum…

It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…

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…

We study submodularity for law-invariant functionals, with particular attention to convex risk measures. Expected losses are modular, and certainty equivalents are submodular exactly when the loss function is convex. Law-invariant coherent…

Measuring the contribution of a bank or an insurance company to overall systemic risk is a key concern, particularly in the aftermath of the 2007--2009 financial crisis and the 2020 downturn. In this paper, we derive worst-case and…

Continued interest in sustainable investing calls for an axiomatic approach to measures of risk and reward that focus not only on financial returns, but also on measures of environmental and social sustainability, i.e. environmental,…

We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent…

A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, nonfinancial and insurance positions. The debated cash additive axiom is relaxed into the cash sub additive axiom to…

In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…

The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between…

Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…

The paper discusses capital allocation using the Euler formula and focuses on the risk measures Value-at-Risk (VaR) and Expected shortfall (ES). Some new results connected to this capital allocation is known. Two examples illustrate that…

We study a general risk measure called the generalized shortfall risk measure, which was first introduced in Mao and Cai (2018). It is proposed under the rank-dependent expected utility framework, or equivalently induced from the cumulative…

This paper presents analytical solutions to the problem of how to calculate sensible VaR (Value-at-Risk) and ES (Expected Shortfall) contributions in the CreditRisk+ methodology. Via the ES contributions, ES itself can be exactly computed…

We solve an expected utility-maximization problem with a Value-at-risk constraint on the terminal portfolio value in an incomplete financial market due to stochastic volatility. To derive the optimal investment strategy, we use the dynamic…

Financial institutions have to allocate so-called "economic capital" in order to guarantee solvency to their clients and counter parties. Mathematically speaking, any methodology of allocating capital is a "risk measure", i.e. a function…