Related papers: Value-at-Risk and expected shortfall for linear po…
Cryptocurrency market is known for exhibiting significantly higher volatility than traditional asset classes. Efficient and adequate risk calculation is vital for managing risk exposures in such market environments where extreme price…
In this paper, both dynamic mean-variance portfolio selection problems and dynamic variance hedging problems are discussed under non-Markovian framework. Explicit closed-loop equilibrium strategies of these problems are respectively…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
Extreme Value Theory (EVT) is one of the most commonly used approaches in finance for measuring the downside risk of investment portfolios, especially during financial crises. In this paper, we propose a novel approach based on EVT called…
Portfolio optimization methods have evolved significantly since Markowitz introduced the mean-variance framework in 1952. While the theoretical appeal of this approach is undeniable, its practical implementation poses important challenges,…
In this paper, we consider the basic problem of portfolio construction in financial engineering, and analyze how market-based and analytical approaches can be combined to obtain efficient portfolios. As a first step in our analysis, we…
This paper explores the implications of producing forecast distributions that are optimized according to scoring rules that are relevant to financial risk management. We assess the predictive performance of optimal forecasts from…
Measuring risk is at the center of modern financial risk management. As the world economy is becoming more complex and standard modeling assumptions are violated, the advanced artificial intelligence solutions may provide the right tools to…
A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its…
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…
We study the feasibility and noise sensitivity of portfolio optimization under some downside risk measures (Value-at-Risk, Expected Shortfall, and semivariance) when they are estimated by fitting a parametric distribution on a finite sample…
In an earlier study, we showed that Tsallis relative entropy (TRE), which is the generalization of Kullback-Leibler relative entropy (KLRE) to non-extensive systems, can be used as a possible risk measure in constructing risk optimal…
A justification of the Basel liquidity formula for risk capital in the trading book is given under the assumption that market risk-factor changes form a Gaussian white noise process over 10-day time steps and changes to P&L are linear in…
Value-at-Risk (VaR) is an institutional measure of risk favored by financial regulators. VaR may be interpreted as a quantile of future portfolio values conditional on the information available, where the most common quantile used is 95%.…
Capital allocation is a procedure used to assess the risk contributions of individual risk components to the total risk of a portfolio. While the conditional tail expectation (CTE)-based capital allocation is arguably the most popular…
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…
The aim of this paper is to determine the Value at Risk (VaR) of the portfolio consisting of long positions in foreign currencies on an emerging market. Basing on empirical data we restrict ourselves to the case when the tail parts of…
In this paper we study an ensemble of random matrices called Elliptic Volatility Model, which arises in finance as models of stock returns. This model consists of a product of independent matrices $X = \Sigma Z $ where $Z$ is a $T$ by $S$…
Value-at-Risk and its conditional allegory, which takes into account the available information about the economic environment, form the centrepiece of the Basel framework for the evaluation of market risk in the banking sector. In this…
We introduce performance-based regularization (PBR), a new approach to addressing estimation risk in data-driven optimization, to mean-CVaR portfolio optimization. We assume the available log-return data is iid, and detail the approach for…