Related papers: Capital allocation and tail central moments for th…
In this paper we discuss a general methodology to compute the market risk measure over long time horizons and at extreme percentiles, which are the typical conditions needed for estimating Economic Capital. The proposed approach extends the…
We propose a novel probabilistic model to facilitate the learning of multivariate tail dependence of multiple financial assets. Our method allows one to construct from known random vectors, e.g., standard normal, sophisticated joint…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
Despite the fact that the Euler allocation principle has been adopted by many financial institutions for their internal capital allocation process, a comprehensive description of Euler allocation seems still to be missing. We try to fill…
Standard statistical analysis is unable to provide reliable confidence intervals on expectation values of probability distributions that do not satisfy the conditions of the central limit theorem. We present a regression-based estimator of…
Risk capital allocations (RCAs) are an important tool in quantitative risk management, where they are utilized to, e.g., gauge the profitability of distinct business units, determine the price of a new product, and conduct the marginal…
We study split-conformal prediction for regression when the reported prediction set must be a single interval, at target marginal coverage $1-\alpha$, where $\alpha$ is the nominal miscoverage level. Under this reporting constraint, the…
Value at risk (VaR) and expected shortfall (ES) are common high quantile-based risk measures adopted in financial regulations and risk management. In this paper, we propose a tail risk measure based on the most probable maximum size of risk…
The dynamic portfolio construction problem requires dynamic modeling of the joint distribution of multivariate stock returns. To achieve this, we propose a dynamic generative factor model which uses random variable transformation as an…
To achieve robustness of risk across different assets, risk parity investing rules, a particular state of risk contributions, have grown in popularity over the previous few decades. To generalize the concept of risk contribution from the…
We consider an investor, whose portfolio consists of a single risky asset and a risk free asset, who wants to maximize his expected utility of the portfolio subject to managing the Value at Risk (VaR) assuming a heavy tailed distribution of…
In risk management, tail risks are of crucial importance. The assessment of risks should be carried out in accordance with the regulatory authority's requirement at high quantiles. In general, the underlying distribution function is…
Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss…
Predicting the occurrence of tail events is of great importance in financial risk management. By employing the method of peak-over-threshold (POT) to identify the financial extremes, we perform a recurrence interval analysis (RIA) on these…
In this paper, the multivariate tail covariance (MTCov) for generalized skew-elliptical distributions is considered. Some special cases for this distribution, such as generalized skew-normal, generalized skew student-t, generalized…
We study the variability of a risk from the statistical viewpoint of multimodality of the conditional loss distribution given that the aggregate loss equals an exogenously provided capital. This conditional distribution serves as a building…
In this paper we consider the problem of computing tail probabilities of the distribution of a random sum of positive random variables. We assume that the individual variables follow a reproducible natural exponential family (NEF)…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
Tail dependence refers to clustering of extreme events. In the context of financial risk management, the clustering of high-severity risks has a devastating effect on the well-being of firms and is thus of pivotal importance in risk…
Expectile, as the minimizer of an asymmetric quadratic loss function, is a coherent risk measure and is helpful to use more information about the distribution of the considered risk. In this paper, we propose a new risk measure by replacing…