RISK PERCEPTION: A SOCIAL WORST CASE ANALYSIS

Worst case model risk management

We are interested in model risk control problems. We study a strategy for the trader which, in a sense, guarantees good performances whatever is the unknown model for the assets of his/her portfolio. The trader chooses trading strategies to decrease the risk and therefore acts as a minimizer; the market systematically acts against the interest of the trader, so that we consider it acts as a max...

The worst-case risk of a portfolio

We show how to compute in a numerically efficient way the maximum risk of a portfolio, given uncertainty in the means and covariances of asset returns. This is a semidefinite programming problem, and is readily solved by interior-point methods for convex optimization developed in recent years. While not as general, this approach is more accurate and much faster than Monte Carlo methods. The com...

Worst - Case Analysis Handout 7

Worst-Case Linear Discriminant Analysis

Dimensionality reduction is often needed in many applications due to the high dimensionality of the data involved. In this paper, we first analyze the scatter measures used in the conventional linear discriminant analysis (LDA) model and note that the formulation is based on the average-case view. Based on this analysis, we then propose a new dimensionality reduction method called worst-case li...

Worst - Case Tail Probabilities in Credit Risk

Simulation is widely used to measure credit risk in portfolios of loans, bonds, and other instruments subject to possible default. This analysis requires performing the difficult modeling task of capturing the dependence between obligors adequately. Current methods assume a form for the joint distribution of the obligors and match its parameters to given dependence specifications, usually corre...