Related papers: Environmental CVA with K-Robust Wrong-Way Risk
Conventional hurricane track generation methods typically depend on biased outputs from Global Climate Models (GCMs), which undermines their accuracy in the context of climate change. We present a novel dynamic bias correction framework…
We present the conditional value-at-risk (CVaR) in the context of Markov chains and Markov decision processes with reachability and mean-payoff objectives. CVaR quantifies risk by means of the expectation of the worst p-quantile. As such it…
In real-world scenarios, risk-averse learning is valuable for mitigating potential adverse outcomes. However, the delayed feedback makes it challenging to assess and manage risk effectively. In this paper, we investigate risk-averse…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
In this article, we present a novel approach for the construction of an environment-friendly green portfolio using the ESG ratings, and application of the modern portfolio theory to present what we call as the ``green efficient frontier''…
General wrong way risk (WWR) estimation is necessary for regulatory CVA capital and useful for pricing CVA and FVA. We introduce a model independent method for calculating WWR and update the definition of WWR to deal with the lack of…
The initial Climate-Extended Risk Model (CERM) addresses the estimate of climate-related financial risk embedded within a bank loan portfolio, through a climatic extension of the Basel II IRB model. It uses a Gaussian copula model…
Environmental contours are used in structural reliability analysis of marine and coastal structures as an approximate means to locate the boundary of the distribution of environmental variables, and hence sets of environmental conditions…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
We analyze the counterparty risk embedded in CDS contracts, in presence of a bilateral margin agreement. First, we investigate the pricing of collateralized counterparty risk and we derive the bilateral Credit Valuation Adjustment (CVA),…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
There exists a range of different models for estimating and simulating credit risk transitions to optimally manage credit risk portfolios and products. In this chapter we present a Coupled Markov Chain approach to model rating transitions…
In an environmental framework, extreme values of certain spatio-temporal processes, for example wind speeds, are the main cause of severe damage in property, such as electrical networks, transport and agricultural infrastructures.…
Assessing climate risk and its potential impacts on our cities and economies is of fundamental importance. Extreme weather events, such as hurricanes, floods, and storm surges can lead to catastrophic damages. We propose a flexible approach…
Several environmental phenomena can be described by different correlated variables that must be considered jointly in order to be more representative of the nature of these phenomena. For such events, identification of extremes is…
In this paper, a new way to integrate volatility information for estimating value at risk (VaR) and conditional value at risk (CVaR) of a portfolio is suggested. The new method is developed from the perspective of Bayesian statistics and it…
Environmental contours are tools frequently used in the early design of marine structures. They provide a description of critical design conditions and serve as a means for simplifying expensive long-term response calculations. Here, we…
Classical environmental contours are used in structural design in order to obtain upper bounds on the failure probabilities of a large class of designs. Buffered environmental contours serve the same purpose, but with respect to the…
In a wide variety of sequential decision making problems, it can be important to estimate the impact of rare events in order to minimize risk exposure. A popular risk measure is the conditional value-at-risk (CVaR), which is commonly…
In this paper, we compare static and dynamic (reduced form) approaches for modeling wrong-way risk in the context of CVA. Although all these approaches potentially suffer from arbitrage problems, they are popular (respectively) in industry…