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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...
Persistent link: https://www.econbiz.de/10010958774
Abstract. 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...
Persistent link: https://www.econbiz.de/10005007630
Index tracking is a valuable low-cost alternative to active portfolio management. The implementation of a quantitative approach, however, is a major challenge from an optimization perspective. The optimal selection of a group of assets that can replicate the index of a much larger portfolio...
Persistent link: https://www.econbiz.de/10005245057
Estimating financial risk is a critical issue for banks and insurance companies. Recently, quantile estimation based on Extreme Value Theory (EVT) has found a successful domain of application in such a context, outperforming other approaches. Given a parametric model provided by EVT, a natural...
Persistent link: https://www.econbiz.de/10005416791
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...
Persistent link: https://www.econbiz.de/10010738301
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...
Persistent link: https://www.econbiz.de/10010968918
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...
Persistent link: https://www.econbiz.de/10010968920
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...
Persistent link: https://www.econbiz.de/10010976201
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...
Persistent link: https://www.econbiz.de/10010584054
Basel II imposes regulatory capital on banks related to the de- fault risk of their credit portfolio. Banks using an internal rating approach compute the regulatory capital from pooled probabilities of default. These pooled probabilities can be calculated by clustering credit borrowers into...
Persistent link: https://www.econbiz.de/10004998347