We examine the impact of tail risk on the return dynamics of size, book-to-market ratio, momentum, and idiosyncratic volatility sorted portfolios. Our time-series analyses document significant portfolio return exposures to aggregate tail risk. In particular, portfolios that contain small, value,...

There is nothing like a market crash to focus the mind on the importance of risk management and, more specifically, tail risk management. Because tail events are generally systemic in nature and are characterised by elevated correlations and liquidity squeezes, effective tail risk management is...

This paper aims to determine which extreme value copula is best suited to the bivariate relationships between shocks of U.S market with Brazilian, Argentine and Mexican markets. We used prices of S&P500, Ibovespa, Merval and IPC from January, 3, 2009 to December, 31, 2010, totaling 483...

To avert the impending global Cyber-Finance Insurance Crisis based upon large-scale commercial reliance upon quantitative models with inherent model risks, tail risks, and systemic risks in current form, this post-doctoral thesis makes the following key contributions: Develops the first known...

[Update: Within four weeks of the original publication of this research report, Risk Magazine reported in its 28th February 2012 issue story titled 'Goodbye VaR? Basel to Consider Other Risk Metrics': "A review of trading book capital rules, due to be launched in March by the Basel Committee on...

In aftermath of the Financial Crisis, some risk management practitioners advocate wider adoption of Bayesian inference to replace Value-at-Risk (VaR) models for minimizing risk failures (Borison & Hamm, 2010). They claim reliance of Bayesian inference on subjective judgment, the key limitation...

We consider an investor who faces parameter uncertainty in a continuous-time financial market. We model the investor's preference by a power utility function leading to constant relative risk aversion. We show that the loss in expected utility is large when using a simple plug-in strategy for...

It has recently been suggested that speculation is now playing an important role in daily price movements of global oil prices. This raises the question: what are important drivers of price changes given this new 'speculative' regime? We identify new factors of the oil market related to...

This paper presents a mathematical model to evaluate the risks of arbitration in contractual disputes to decide whether or not to raise an arbitration case for a claim. It adds the ingredient of a regret theory approach for taking that decision, if an amicable settlement amount is not agreed....

Algorithmic risk assessments hold the promise of greatly advancing accurate decision-making, but in practice, multiple real-world examples have been shown to distribute errors disproportionately across demographic groups. In this paper, we characterize why error disparities arise in the first...