In this paper, we propose a flexible tool to estimate the risk sensitivity of a high-dimensional portfolio composed of different classes of assets, especially in extreme risk circumstances. We build a so-called Cvine Risk Factors Model (CRFM), which is a non-linear version of a risk factor model...

The ultimate goal of risk management is the generation of efficient incomes. The objective is to generate the maximum return for a unit of risk taken or to minimise the risk taken to generate the return expected i.e. it is the optimisation of a financial institution strategy. Therefore, by...

Monte Carlo (MC) simulation is a technique that provides approximate solutions to a broad range of mathematical problems. A drawback of the method is its high computational cost, especially in a high-dimensional setting. Estimating the Tail Value-at-Risk for large portfolios or pricing basket...

The forecasting literature has identified three important and broad issues: the predictive content is unstable over time, in-sample and out-of-sample discordant results and the problematic statistical inference with highly persistent predictors. In this paper, we simultaneously address these...

This paper studies the role of fluctuations in the aggregate price-earning ratio at different time-scales, for predicting stock returns and exploring the channels through which returns are forecasted. Using U.S. quartely data, we find that cycles in the price-earning ratio are strong and better...

In this paper, we propose an alternative approach to estimate long-term risk. Instead of using the static square root method, we use a dynamic approach based on volatility forecasting by non-linear models. We explore the possibility of improving the estimations by different models and...

We consider a multiperiod financial exchange economy with nominal assets and restricted participation, where each agent's portfolio choice is restricted to a closed, convex set containing zero, as in Siconolfi (1989). Using an approach that dates back to Cass (1984, 2006) in the unconstrained...

We provide an economic valuation of the riskiness of risk models by directly measuring the impact of model risks (specification and estimation risks) on VaR estimates. We find that integrating the model risk into the VaR computations implies a substantial minimum correction of the order of...

Most of the international asset pricing models are developed in the situation where purchasing power parity (PPP) is not respected. Investors of different countries do not agree on expected security returns. However, in this case, an equilibrium on the international assets market may exist but...

This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay for information before they trade. By paying for the...