We explore a multi-asset jump-diffusion pricing model, combining a systemic risk asset with several conditionally independent ordinary assets. Our approach allows for analyzing and modeling a portfolio that integrates high-activity security, such as an exchange trading fund (ETF) tracking a...

This study addresses market concentration among major corporations, highlighting the utility of relative entropy for understanding diversification strategies. It introduces entropic value at risk (EVaR) as a coherent risk measure, which is an upper bound to the conditional value at risk (CVaR),...

This paper presents a novel risk-based approach for an optimal asset allocation problem with default risk, where a money market account, an ordinary share and a defaultable security are investment opportunities in a general non-Markovian economy incorporating random market parameters. The...

An arbitrage portfolio provides a cash flow that can never be negative at zero cost. We define the weaker concept of a “desirable portfolio” delivering cash flows with negative risk at zero cost. Although these are not completely risk-free investments and subject to the risk measure used,...

This paper considers risks of the investment portfolio, which consist of distributed mortgages and sold European call options. It is assumed that the stream of the credit payments could fall by a jump. The time of the jump is modeled by the exponential distribution. We suggest that the returns...

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence, it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We...

Portfolio credit risk is often concerned with the tail distribution of the total loss, defined to be the sum of default losses incurred from a collection of individual loans made out to the obligors. The default for an individual loan occurs when the assets of a company (or individual) fall...

We discuss when and why custom multi-factor risk models are warranted and give source code for computing some risk factors. Pension/mutual funds do not require customization but standardization. However, using standardized risk models in quant trading with much shorter holding horizons is...

In order to protect stakeholders of insurance companies and financial institutions against adverse outcomes of risky businesses, regulators and senior management use capital allocation techniques. For enterprise-wide risk management, it has become important to calculate the contribution of each...

It is well known that a random vector with given marginals is comonotonic if and only if it has the largest convex sum, and that a random vector with given marginals (under an additional condition) is mutually exclusive if and only if it has the minimal convex sum. This paper provides an...