Abstract Starting from the requirement that risk of financial portfolios should be measured in terms of their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We characterize convex loss-based risk measures by a...

Measuring the risk of a financial portfolio involves two steps: estimating the loss distribution of the portfolio from available observations and computing a quot;risk measurequot; which summarizes the risk of the portfolio. We define the notion of quot;risk measurement procedurequot;, which...

Measuring the risk of a financial portfolio involves two steps: estimating the loss distribution of the portfolio from available observations and computing a 'risk measure' that summarizes the risk of the portfolio. We define the notion of 'risk measurement procedure', which includes both of...

We introduce an alternative approach for computing the values of CDO tranche spreads in reduced-form models for portfolio credit derivatives (quot;top-downquot; models), which allows for efficient computations and can be used as an ingredient of an efficient calibration algorithm. Our approach...

Constant proportion portfolio insurance (CPPI) allows an investor to limit downside risk while retaining some upside potential by maintaining an exposure to risky assets equal to a constant multiple of the quot;cushion,quot; the difference between the current portfolio value and the guaranteed...

We propose a probabilistic approach for estimating parameters of an option pricing model from a set of observed option prices. Our approach is based on a stochastic optimization algorithm which generates a random sample from the set of global minima of the in-sample pricing error and allows for...

Uncertainty on the choice of an option pricing model can lead to quot;model riskquot; in the valuation of portfolios of options. After discussing someproperties which a quantitative measure of model uncertainty should verify in order to be useful and relevant in the context of risk management of...

We present a finite difference method for solving parabolic partial integro-differential equations with possibly singular kernels which arise in option pricing theory when the random evolution of the underlying asset is driven by a Levy process or, more generally, a time-inhomogeneous...

Motivated by stylized statistical properties of interest rates, we propose a modeling approach in which the forward rate curve is described as a stochastic process in a space of curves. After decomposing the movements of the term structure into the variations of the short rate, the long rate and...