In this paper we provide a review of copula theory with applications to finance. We illustrate the idea on the bivariate framework and discuss the simple, elliptical and Archimedean classes of copulae. Since the copulae model the dependency structure between random variables, next we explain the...

The distributions of income and wealth in countries across the world are found to possess some robust and stable features independent of the specific economic, social and political conditions of the countries. We discuss a few physics-inspired multi-agent dynamic models along with their...

The distributions of income and wealth in countries across the world are found to possess some robust and stable features independent of the specific economic, social and political conditions of the countries. We discuss a few physics-inspired multi-agent dynamic models along with their...

Classical asset allocation methods have assumed that the distribution of asset returns is smooth, well behaved with stable statistical moments over time. The distribution is assumed to have constant moments with e.g., Gaussian distribution that can be conveniently parameterised by the first two...

Portfolio selection and risk management are very actively studied topics in quantitative finance and applied statistics. They are closely related to the dependency structure of portfolio assets or risk factors. The correlation structure across assets and opposite tail movements are essential to...

We investigate correlations of asset returns in stress scenarios where a common risk factor is truncated. Our analysis is performed in the class of normal variance mixture (NVM) models, which encompasses many distributions commonly used in financial modelling. For the special cases of jointly...

We consider the expected shortfall of accounting values, or, mathematically speaking, of random variables that are not continuous (i. e. whose cumulative distribution function is not continuous). Acerbi and Tasche show that one has to abandon the conditional expectation in order to maintain...

This paper analyses and develops insights to systematic risk and diversification when random, imperfectly dependent, losses are aggregated. Systematic risk and diversification are shown to vary across layers of component losses according to local dependence and volatility structures. Systematic...

This paper considers sampling proportional to expected size from a partly unknown distribution. The applied context is the exploration for undiscovered resources, like oil accumulations in different deposits, where the most promising deposits are likely to be drilled first, based on some...

The purpose of this paper is to investigate whether a dynamic Value at Risk model and high frequency realized volatility models can improve the accuracy of 1-day ahead VaR forecasting beyond the performance of frequently used models. As such, this paper constructs 60 conditional volatility...