Related papers: Introducing Variety in Risk Management
We propose a novel class of convex risk measures, based on the concept of the Fr\'echet mean, designed in order to handle uncertainty which arises from multiple information sources regarding the risk factors of interest. The proposed risk…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
In this paper, we investigate the features and the performance of the Risk Parity (RP) portfolios using the Mean Absolute Deviation (MAD) as a risk measure. The RP model is a recent strategy for asset allocation that aims at equally sharing…
Portfolio management is an essential component of investment strategy that aims to maximize returns while minimizing risk. This paper explores several portfolio management strategies, including asset allocation, diversification, active…
This survey gives an introduction to monetary measures of risk as monotone and cash additive functions on spaces of univariate random variables. Primal and dual representation results as well as several examples are discussed. Principal…
In this study, we propose a new multi-objective portfolio optimization with idiosyncratic and systemic risks for financial networks. The two risks are measured by the idiosyncratic variance and the network clustering coefficient derived…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
In this work, we introduce Modern Portfolio Theory using basic concepts from linear algebra, differential calculus, statistics, and optimization. This theory allows us to measure the return and risk of an investment portfolio, serving as a…
Multivariate probability density functions of returns are constructed in order to model the empirical behavior of returns in a financial time series. They describe the well-established deviations from the Gaussian random walk, such as an…
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…
Correlations between asset returns are important in many financial applications. In recent years, multivariate volatility models have been used to describe the time-varying feature of the correlations. However, the curse of dimensionality…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
Quantitative Investment, built on the solid foundation of robust financial theories, is at the center stage in investment industry today. The essence of quantitative investment is the multi-factor model, which explains the relationship…
The benefits of portfolio diversification is a central tenet implicit to modern financial theory and practice. Linked to diversification is the notion of breadth. Breadth is correctly thought of as the number of in- dependent bets available…
We analyze the performance of RiskMetrics, a widely used methodology for measuring market risk. Based on the assumption of normally distributed returns, the RiskMetrics model completely ignores the presence of fat tails in the distribution…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
The new notion of maturity-independent risk measures is introduced and contrasted with the existing risk measurement concepts. It is shown, by means of two examples, one set on a finite probability space and the other in a diffusion…