Related papers: Hedging Extreme Co-Movements
The Sharpe ratio is a way to compare the excess returns (over the risk free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper we introduce a robust Sharpe ratio portfolio under the assumption…
In extreme value inference it is a fundamental problem how the target value is required to be extreme by the extreme value theory. In iid settings this study both theoretically and numerically compares tail estimators, which are based on…
We propose a new method of measuring the third and fourth moments of return distribution based on quadratic variation method when the return process is assumed to have zero drift. The realized third and fourth moments variations computed…
This paper presents a novel semiparametric method to study the effects of extreme events on binary outcomes and subsequently forecast future outcomes. Our approach, based on Bayes' theorem and regularly varying (RV) functions, facilitates a…
We present extensive evidence that ``risk premium'' is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the…
This paper aims to investigate the role of gold as a hedge and/or safe haven against oil price and currency market movements for medium (calm period) and large (extreme movement) fluctuations. In revisiting the role of gold, our study…
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…
Determining the causes of extreme events is a fundamental question in many scientific fields. An important aspect when modelling multivariate extremes is the tail dependence. In application, the extreme dependence structure may…
We propose a Gaussian-copula-based framework that learns deal-level dependence directly from observed joint success frequencies across founder, geography, and market attributes. Holding marginal deal success probabilities fixed, deal-level…
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
This paper introduces a novel measure to quantify the directional dependence of extreme events between two variables. The proposed approach is designed to capture asymmetric tail dependence by studying conditional tail expectations of…
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This…
Modelling non-homogeneous and multi-component data is a problem that challenges scientific researchers in several fields. In general, it is not possible to find a simple and closed form probabilistic model to describe such data. That is why…
We study stochastic dominance between portfolios of independent and identically distributed (iid) extremely heavy-tailed (i.e., infinite-mean) Pareto random variables. With the notion of majorization order, we show that a more diversified…
Statistical modeling of high dimensional extremes remains challenging and has generally been limited to moderate dimensions. Understanding structural relationships among variables at their extreme levels is crucial both for constructing…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We propose a set of dependence measures that are non-linear, local, invariant to a wide range of transformations on the marginals, can show tail and risk asymmetries, are always well-defined, are easy to estimate and can be used on any…
This paper investigates how two important sources of risk -- market tail risk and extreme market volatility risk -- are priced into the cross-section of asset returns across various investment horizons. To identify such risks, we propose a…
In many areas of interest, modern risk assessment requires estimation of the extremal behaviour of sums of random variables. We derive the first order upper-tail behaviour of the weighted sum of bivariate random variables under weak…
The relationship between a response variable and its covariates can vary significantly, especially in scenarios where covariates take on extremely high or low values. This paper introduces a max-linear tail regression model specifically…