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The joint Value at Risk (VaR) and expected shortfall (ES) quantile regression model of Taylor (2017) is extended via incorporating a realized measure, to drive the tail risk dynamics, as a potentially more efficient driver than daily…
Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB…
Decision maker's preferences are often captured by some choice functions which are used to rank prospects. In this paper, we consider ambiguity in choice functions over a multi-attribute prospect space. Our main result is a robust…
We consider calculation of capital requirements when the underlying economic scenarios are determined by simulatable risk factors. In the respective nested simulation framework, the goal is to estimate portfolio tail risk, quantified via…
To understand the relationship between news sentiment and company stock price movements, and to better understand connectivity among companies, we define an algorithm for measuring sentiment-based network risk. The algorithm ranks companies…
In this paper, we explore several Fatou-type properties of risk measures. The paper continues to reveal that the strong Fatou property, which was introduced in [17], seems to be most suitable to ensure nice dual representations of risk…
A key challenge for Bitcoin cryptocurrency holders, such as startups using ICOs to raise funding, is managing their FX risk. Specifically, a misinformed decision to convert Bitcoin to fiat currency could, by itself, cost USD millions. In…
We investigate the forecasting ability of the most commonly used benchmarks in financial economics. We approach the usual caveats of probabilistic forecasts studies -small samples, limited models and non-holistic validations- by performing…
Financial institutions now face the important challenge of having to do multiple portfolio revaluations for their risk computation. The list is almost endless: from XVAs to FRTB, stress testing programs, etc. These computations require from…
We consider a fundamental integer programming (IP) model for cost-benefit analysis flood protection through dike building in the Netherlands, due to Verweij and Zwaneveld. Experimental analysis with data for the Ijsselmeer lead to integral…
We find that factors explaining bank loan recovery rates vary depending on the state of the economic cycle. Our modeling approach incorporates a two-state Markov switching mechanism as a proxy for the latent credit cycle, helping to explain…
In a market with stochastic volatility and jumps, we consider a VIX-linked fee structure for variable annuity contracts with guaranteed minimum withdrawal benefits (GMWB). Our goal is to assess the effectiveness of the VIX-linked fee…
The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
This paper proposes a new integrated variance estimator based on order statistics within the framework of jump-diffusion models. Its ability to disentangle the integrated variance from the total process quadratic variation is confirmed by…
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…
The aim of this paper is to introduce a risk measure that extends the Gini-type measures of risk and variability, the Extended Gini Shortfall, by taking risk aversion into consideration. Our risk measure is coherent and catches variability,…
In economics, insurance and finance, value at risk (VaR) is a widely used measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, time horizon, and probability $\alpha$, the $100\alpha\%$ VaR is…
In decision under risk, the primal moments of mean and variance play a central role to define the local index of absolute risk aversion. In this paper, we show that in canonical non-EU models dual moments have to be used instead of, or on…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…