In accordance with Basel Capital Accords, the Capital Requirements (CR) for market risk exposure of banks is a nonlinear function of Value-at-Risk (VaR). Importantly, the CR is calculated based on a bank’s actual portfolio, i.e. the portfolio represented by its current holdings. To tackle...

We characterize the investor’s optimal portfolio allocation subject to a budget constraint and a probabilistic VaR constraint in complete markets environments with a finite number of states. The set of feasible portfolios might no longer be connected or convex, while the number of local optima...

This paper analyzes the safety-first portfolio model under two different target assumptions, the fixed target, which is commonly assumed in the literature, and the random target, which has played only a minor role so far. As both targets can be easily motivated, the open question is, which...

This paper addresses the open debate about the usefulness of high-frequency (HF) data in large-scale portfolio allocation. We consider the problem of constructing global minimum variance portfolios based on the constituents of the S&P 500 over a four-year period covering the 2008 financial...

We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above...

The paper proposes a framework for large-scale portfolio optimization which accounts for all the major stylized facts of multivariate financial returns, including volatility clustering, dynamics in the dependency structure, asymmetry, heavy tails, and nonellipticity. It introduces a so-called...

A multivariate normal mean-variance heterogeneous tails mixture distribution is proposed for the joint distribution of financial factors and asset returns (referred to as Factor-HGH). The proposed latent variable model incorporates a Cholesky decomposition of the dispersion matrix to ensure a...