Related papers: Capital allocation and tail central moments for th…
The estimation of loss distributions for dynamic portfolios requires the simulation of scenarios representing realistic joint dynamics of their components. We propose a novel data-driven approach for simulating realistic, high-dimensional…
We introduce a method to estimate simultaneously the tail and the threshold parameters of an extreme value regression model. This standard model finds its use in finance to assess the effect of market variables on extreme loss distributions…
The third moment variation of a financial asset return process is defined by the quadratic covariation between the return and square return processes. The skew and fat tail risk of an underlying asset can be hedged using a third moment…
This paper explores the applications of the 20/60/20 rule-a heuristic method that segments data into top-performing, average-performing, and underperforming groups-in mathematical finance. We review the statistical foundations of this rule…
Capital allocation is a procedure for quantifying the contribution of each source of risk to aggregated risk. The gradient allocation rule, also known as the Euler principle, is a prevalent rule of capital allocation under which the…
There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…
Heavy-tailed probability distributions are extremely useful and play a crucial role in modeling different types of financial data sets. This study presents a two-pronged methodology. First, a mixture probability distribution is created by…
We propose a novel risk matrix to characterize the optimal portfolio choice of an investor with tail concerns. The diagonal of the matrix contains the Value-at-Risk of each asset in the portfolio and the off-diagonal the pairwise…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
In the context of risk measures, the capital allocation problem is widely studied in the literature where different approaches have been developed, also in connection with cooperative game theory and systemic risk. Although static capital…
This paper deals with tail diversification in financial time series through the concept of statistical independence by way of differential entropy and mutual information. By using moments as contrast functions to isolate the tails of the…
The mean-variance portfolio model, based on the risk-return trade-off for optimal asset allocation, remains foundational in portfolio optimization. However, its reliance on restrictive assumptions about asset return distributions limits its…
We propose a novel extremal dependence measure called the partial tail-correlation coefficient (PTCC), in analogy to the partial correlation coefficient in classical multivariate analysis. The construction of our new coefficient is based on…
As the increasing application of AI in finance, this paper will leverage AI algorithms to examine tail risk and develop a model to alter tail risk to promote the stability of US financial markets, and enhance the resilience of the US…
In this paper, we propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
We propose a variational tail bound for norms of random vectors under moment assumptions on their one-dimensional marginals. A simplified version of the bound that parametrizes the ``aggregating distribution'' using a certain pushforward of…
Extreme values and the tail behavior of probability distributions are essential for quantifying and mitigating risk in complex systems of all kinds. In multivariate settings, accounting for correlations is crucial. Although extreme value…
In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
Optimal resource allocation in wireless systems still stands as a rather challenging task due to the inherent statistical characteristics of channel fading. On the one hand, minimax/outage-optimal policies are often overconservative and…
The tail of the distribution of a sum of a random number of independent and identically distributed nonnegative random variables depends on the tails of the number of terms and of the terms themselves. This situation is of interest in the…