Tail risk refers to the risk associated with extreme values and is often affected by extremal dependence among multivariate extremes. Multivariate tail risk, as measured by a coherent risk measure of tail conditional expectation, is analyzed for multivariate regularly varying distributions. Asymptotic expressions for tail risk are established in terms of the intensity measure that characterizes...

Often, actuaries replace a group of heterogeneous life insurance contracts (different age at policy issue, contract duration, sum insured, etc.) with a representative one in order to speed the computations. The present paper aims to homogenize a group of policies by controlling the impact on Tail-VaR and related risk measures. © 2015 Elsevier B.V. All rights reserved.

In this paper we study a classical option-based portfolio strategy which minimizes the Value-at-Risk of the hedged position in a continuous time, regime-switching jump-diffusion market, by using Fourier Transform methods. However, the analysis of this hedging strategy, as well as the computational technique for its implementation, is fairly general, i.e. it can be applied to any dynamical model...

A new approach for cost-sensitive classification is proposed. We extend the framework of cost-sensitive learning to mitigate risks of huge costs occurring with low probabilities, and propose an algorithm that achieves this goal. Instead of minimizing the expected cost commonly used in cost-sensitive learning, our algorithm minimizes expected shortfall, a.k.a. conditional value-at-risk, known as...

Value-at-risk (VaR) has become the standard criterion for assessing risk in the financial industry. Given the widespread usage of VaR, it becomes increasingly important to study the effects of VaR-based risk management on the prices of stocks and options. We solve a continuous-time asset pricing model, based on Lucas (1978) and Basak and Shapiro (2001), to investigate these effects. We find tha...

We investigate why spreads on corporate bonds are so much larger than expected losses from default. Systematic factors make very little contribution to spreads, even if higher moments or downside effects are taken into account. Instead we find that sizes of spreads are strongly related to idiosyncratic-risk factors: not only to idiosyncratic equity volatility, but even more to idiosyncratic bon...

Risk adjusted performance measurement for a portfolio involves calculating the risk contribution of each single asset. We show that there is only one definition for the risk contributions which is suitable for performance measurement, namely as derivative of the underlying risk measure in direction of the considered asset weight. We also compute the derivatives for some popular risk measures in...

A two-sided Weibull is developed to model the conditional financial return distribution, for the purpose of forecasting Value at Risk (VaR) and conditional VaR. A range of conditional return distributions are combined with four volatility specifications to forecast tail risk in four international markets, two exchange rates and one individual asset series, over a four year forecast period that ...