We propose a novel model-free approach to extract a joint multivariate distribution, which is consistent with options written on individual stocks as well as on various available indices. To do so, we first use the market prices of traded options to infer the risk-neutral marginal distributions...

The quantile formulation for optimal portfolio selection problems under increasing law-invariant objectives allows to reduce any such problem to an optimization problem on real functions under monotonicity conditions. We solve two basic types of these optimization problems, which makes it...

We apply univariate GARCH models to construct a computationally simple filter for estimating the conditional correlation matrix of asset returns. The proposed Variance Implied Conditional Correlation (VICC) exploits the polarization result that links the correlation between two standardized...

Robustness of risk measures to changes in underlying loss distributions (distributional uncertainty) is of crucial importance when making well-informed risk management decisions. In this paper, we quantify for any given distortion risk measure its robustness to distributional uncertainty by...

We consider the problem of determining appropriate solvency capital requirements for an insurance company or a financial institution. We demonstrate that the subadditivity condition that is often imposed on solvency capital principles can lead to the undesirable situation where the shortfall...

We construct an algorithm that makes it possible to numerically obtain an investor's optimal portfolio under general preferences. In particular, the objective function and risks constraints may be driven by benchmarks (reflecting state-dependent preferences). We apply the algorithm to various...

In this paper we propose a robust assessment for the net premium of a standard lifeinsurance contract with respect to the uncertainty on the estimated residual lifetimedistribution function. Specifically, we provide a method to derive the range of valuesthat the net premium of a given contract...

The assessment of portfolio risk is often explicitly (e.g., the square root formula under Basel III) or implicitly (e.g., credit risk portfolio models) driven by the marginal distributions of the risky components and the correlations amongst them. We assess the extent by which such practice is...

We propose a novel model-free approach for extracting the risk-neutral quantile function of an asset using options written on this asset. We develop two applications. First, we show how for a given stochastic asset model our approach makes it possible to simulate the underlying terminal asset...

Abstract Actuarial fairness pertains to the situation in which the price of an insurance contract is equal to its expected outcome. We show that actuarial fairness leads to “unfairness” in that annuitants with higher survival rates can choose a better payoff in the sense of second-order...