Related papers: ESG Risk: Lessons Learned from Utility Theory

In a reinforcement learning (RL) framework, we study the exploratory version of the continuous time expected utility (EU) maximization problem with a portfolio constraint that includes widely-used financial regulations such as short-selling…

Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…

A recent article introduced thecontinuous stochastic gradient method (CSG) for the efficient solution of a class of stochastic optimization problems. While the applicability of known stochastic gradient type methods is typically limited to…

Portfolio optimization has long been dominated by covariance-based strategies, such as the Markowitz Mean-Variance framework. However, these approaches often fail to ensure a balanced risk structure across assets, leading to concentration…

In this paper, we study convex risk measures with weak optimal transport penalties. In a first step, we show that these risk measures allow for an explicit representation via a nonlinear transform of the loss function. In a second step, we…

We present a framework for constructing multivariate risk measures that is inspired from univariate Optimized Certainty Equivalent (OCE) risk measures. We show that this new class of risk measures verifies the desirable properties such as…

In this paper, we propose a novel axiomatic approach to evaluating the joint risk of multiple insurance risks under dependence uncertainty. Motivated by both the theory of expected utility and the Cobb-Dauglas utility function, we establish…

Critical infrastructure systems must be both robust and resilient in order to ensure the functioning of society. To improve the performance of such systems, we often use risk and vulnerability analysis to find and address system weaknesses.…

We study the sensitivity to estimation error of portfolios optimized under various risk measures, including variance, absolute deviation, expected shortfall and maximal loss. We introduce a measure of portfolio sensitivity and test the…

In portfolio analysis, the traditional approach of replacing population moments with sample counterparts may lead to suboptimal portfolio choices. I show that optimal portfolio weights can be estimated using a machine learning (ML)…

When it comes to structural estimation of risk preferences from data on choices, random utility models have long been one of the standard research tools in economics. A recent literature has challenged these models, pointing out some…

Systemic risk is the risk that a company- or industry-level risk could trigger a huge collapse of another or even the whole institution. Various systemic risk measures have been proposed in the literature to quantify the domino and…

Expected Shortfall (ES) is the average return on a risky asset conditional on the return being below some quantile of its distribution, namely its Value-at-Risk (VaR). The Basel III Accord, which will be implemented in the years leading up…

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…

Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…

In this paper, we study properties of certain risk measures associated with acceptance sets. These sets describe regulatory preconditions that have to be fulfilled by financial institutions to pass a given acceptance test. If the financial…

The present paper provides a representation result for monetary risk measures (i.e., monotone translation invariant functionals) satisfying a weak maxitivity property. This result can be understood as a functional analytic generalization of…

To comply with increasingly stringent international standards in risk management and regulation, several approaches have been developed in the literature for forecasting tail-risk measures such as Value-at-Risk (VaR) and Expected Shortfall…

Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the…

We propose a novel portfolio selection approach that manages to ease some of the problems that characterise standard expected utility maximisation. The optimal portfolio is no longer defined as the extremum of a suitably chosen utility…