This study evaluates four machine learning (ML) techniques (Decision Trees (DT), Random Forests (RF), Neural Networks (NN) and Probabilistic Neural Networks (PNN)) on their ability to accurately predict export credit insurance claims. Additionally, we compare the performance of the ML techniques...

The hidden Markov model (HMM) is typically used to predict the hidden regimes of observation data. Therefore, this model finds applications in many different areas, such as speech recognition systems, computational molecular biology and financial market predictions. In this paper, we use HMM for...

Hidden Markov model (HMM) is a powerful machine-learning method for data regime detection, especially time series data. In this paper, we establish a multi-step procedure for using HMM to select stocks from the global stock market. First, the five important factors of a stock are identified and...

We study risk-minimization for a large class of insurance contracts. Given that the individual progress in time of visiting an insurance policy's states follows an F-doubly stochastic Markov chain, we describe different state-dependent types of insurance benefits. These cover single payments at...

There is an increasing influence of machine learning in business applications, with many solutions already implemented and many more being explored. Since the global financial crisis, risk management in banks has gained more prominence, and there has been a constant focus around how risks are...

We introduce a financial stress index that was developed by the Office of Financial Research (OFR FSI) and detail its purpose, construction, interpretation, and use in financial market monitoring. The index employs a novel and flexible methodology using daily data from global financial markets....

In this paper, we employ 99% intraday value-at-risk (VaR) and intraday expected shortfall (ES) as risk metrics to assess the competency of the Multiplicative Component Generalised Autoregressive Heteroskedasticity (MC-GARCH) models based on the 1-min EUR/USD exchange rate returns. Five...

This paper assesses the hedge effectiveness of an index-based longevity swap and a longevity cap for a life annuity portfolio. Although longevity swaps are a natural instrument for hedging longevity risk, derivatives with non-linear pay-offs, such as longevity caps, provide more effective...

One of the key components of counterparty credit risk (CCR) measurement is generating scenarios for the evolution of the underlying risk factors, such as interest and exchange rates, equity and commodity prices, and credit spreads. Geometric Brownian Motion (GBM) is a widely used method for...

This work examines apportionment of multiplicative risks by considering three dominance orderings: first-degree stochastic dominance, Rothschild and Stiglitz’s increase in risk and downside risk increase. We use the relative nth-degree risk aversion measure and decreasing relative nth-degree...