Risk contagion concerns any entity dealing with large scale risks. Suppose Z = (Z1, Z2) denotes a risk vector pertaining to two components in some system. A relevant measurement of risk contagion would be to quantify the amount of influence of high values of Z2 on Z1. This can be measured in a variety of ways. In this paper, we study two such measures: the quantity E[(Z1 − t)+|Z2 > t] called Ma...

We examine the impact of adding either a VaR or a CVaR constraint to the mean–variance model when security returns are assumed to have a discrete distribution with finitely many jump points. Three main results are obtained. First, portfolios on the VaR-constrained boundary exhibit (K + 2)-fund separation, where K is the number of states for which the portfolios suffer losses equal to the VaR bo...

In a financial market, the appreciation rates of stocks are statistically difficult to estimate, and typically only some confidence intervals in which the rates reside can be estimated. In this paper we study continuous-time portfolio selection under ambiguity, in the sense that the appreciation rates are only known to be in a certain convex closed set and the portfolios are allowed to be based...

in this paper, based on error correction model by using panel data, an empirical analysis of demand for international reserves for 16 islamic countries is investigated. besides addressing conventional issues, the model explicitly incorporates the impact of expected export revenues and the impact of the exchange rate system on reserve demand. the results reveal that, short run money market diseq...

This chapter of a collective book aims at presenting the basics of decision making under risk. We ...rst de...ne notions of risk and increasing risk and recall de...nitions and classi...cations (that are valid independently of any representation) of behavior under risk. We then review the classical model of expected utility due to von Neumann and Morgenstern and its main properties. Issues rais...

In this paper we study the model risk of Expected Shortfall (ES), extending the results of Boucher et al. (2014) on model risk of Value-at-Risk (VaR). We propose a correction formula for ES based on passing three backtests. Our results show that for the DJIA index, the smallest corrections are required for the ES estimates built using GARCH models. Furthermore, the 2.5% ES requires smaller corr...