We show that the use of correlations for modeling dependencies may lead to counterintuitive behavior of risk measures, such as Value-at-Risk (VaR) and Expected Short- fall (ES), when the risk of very rare events is assessed via Monte-Carlo techniques. The phenomenon is demonstrated for mixture...

We show that the use of correlations for modeling dependencies may lead to counterintuitive behavior of risk measures, such as Value-at-Risk (VaR) and Expected Shortfall (ES), when the risk of very rare events is assessed via Monte-Carlo techniques. The phenomenon is demonstrated for mixture...

Operational risk data, when available, are usually scarce, heavy-tailed and possibly dependent. In this work, we introduce a model that captures such real-world characteristics and explicitly deals with heterogeneous pairwise and tail dependence of losses. By considering flexible families of...

Index tracking aims at replicating a given benchmark with a smaller number of its constituents. Different quantitative models cam be set up to determine the optimal index replicating portfolio.In this paper, we propose an alternative based on imposing a constraint on the q-norm, 0 q 1, of the...

Given a dictionary of Mn initial estimates of the unknown true regression function, we aim to construct linearly aggregated estimators that target the best performance among all the linear combinations under a sparse q-norm (0 = q = 1) constraint on the linear coefficients. Besides identifying...

Index tracking aims at replicating a given benchmark with a smaller number of its constituents. Different quantitative models can be set up to determine the optimal index replicating portfolio. In this paper, we propose an alternative based on imposing a constraint on the <italic>q</italic>-norm (0 <italic>q</italic> 1) of the...

Index tracking aims at determining an optimal portfolio that replicates the performance of an index or benchmark by investing in a smaller number of constituents or assets. The tracking portfolio should be cheap to maintain and update, i.e., invest in a smaller number of constituents than the...

In designing credit rating systems under the new Basel Accord, considerable effort has been devoted to rating assignment and quantification, while the choice of the optimal bucket structure has received less attention. To fill this gap, we propose two "bucketing" strategies based on constrained...