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The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
For long term investments, model portfolios are defined at the level of indexes, a setup known as Strategic Asset Allocation (SAA). The possible outcomes at a scale of a few decades can be obtained by Monte Carlo simulations, resulting in a…
This paper proposes an important extension to Conditional Value-at-Risk (CoVaR), the popular systemic risk measure, and investigates its properties on the cryptocurrency market. The proposed Vulnerability-CoVaR (VCoVaR) is defined as the…
Conditional Value-at-Risk (CVaR) is a widely used risk metric in applications such as finance. We derive concentration bounds for CVaR estimates, considering separately the cases of light-tailed and heavy-tailed distributions. In the…
Distributional reinforcement learning (RL) -- in which agents learn about all the possible long-term consequences of their actions, and not just the expected value -- is of great recent interest. One of the most important affordances of a…
Online portfolio selection research has so far focused mainly on minimizing regret defined in terms of wealth growth. Practical financial decision making, however, is deeply concerned with both wealth and risk. We consider online learning…
Robust and reliable covariance estimates play a decisive role in financial and many other applications. An important class of estimators is based on Factor models. Here, we show by extensive Monte Carlo simulations that covariance matrices…
In this paper we use a hybrid Monte Carlo-Optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit defaul, under partial information. We consider the case when the…
Conditional Value at Risk (CVaR) is a prominent risk measure that is being used extensively in various domains. We develop a new formula for the gradient of the CVaR in the form of a conditional expectation. Based on this formula, we…
A critical problem in the financial world deals with the management of risk, from regulatory risk to portfolio risk. Many such problems involve the analysis of securities modelled by complex dynamics that cannot be captured analytically,…
This paper concerns sequential computation of risk measures for financial data and asks how, given a risk measurement procedure, we can tell whether the answers it produces are `correct'. We draw the distinction between `external' and…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
In portfolio optimization problems, the minimum expected investment risk is not always smaller than the expected minimal investment risk. That is, using a well-known approach from operations research, it is possible to derive a strategy…
Designing dynamic portfolio insurance strategies under market conditions switching between two or more regimes is a challenging task in financial economics. Recently, a promising approach employing the value-at-risk (VaR) measure to assign…
To comply with increasingly stringent international standards in risk management and regulation, several approaches have been developed in the literature for forecasting tail-risk measures such as Value-at-Risk (VaR) and Expected Shortfall…
In this paper, we present an approach for estimating significant financial metrics within risk management by utilizing quantum phenomena for random number generation. We explore Quantum-Enhanced Monte Carlo, a method that combines…
Operational risk is challenging to quantify because of the broad range of categories (fraud, technological issues, natural disasters) and the heavy-tailed nature of realized losses. Operational risk modeling requires quantifying how these…
Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the…
Risk measures for random vectors have been considered in multi-asset markets with transaction costs and financial networks in the literature. While the theory of set-valued risk measures provide an axiomatic framework for assigning to a…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…