Cumulative Prospect Theory (CPT) is rooted in behavioural psychology and has demonstrated to possess sufficient explanatory power for use in actual deci­ sion-making problems. In this study, two distinct asset classes (i.e. assets with extremely lower or higher CPT values) are classified and...

This paper investigates whether multivariate crash risk (MCRASH), defined as exposure to extreme realizations of multiple systematic factors, is priced in the cross-section of expected stock returns. We derive an extended linear model with a positive premium for MCRASH and we empirically confirm...

How can investors unlock the returns on the electric vehicle industry? Available investment choices range from individual stocks to exchange traded funds. We select six representative assets and characterize the time-varying joint distribution of their returns by copula-GARCH models. They...

One of the most important factors to control for the achievements of investment portfolio returns is risk. If we only think that a 100% positive return is needed to recover a portfolio loss of 50%, we can understand why. With the advent of the exponential growth of technology usage in markets,...

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...

Factor modeling is a popular strategy to induce sparsity in multivariate models as they scale to higher dimensions. We develop Bayesian inference for a recently proposed latent factor copula model, which utilizes a pair copula construction to couple the variables with the latent factor. We use...

This paper provides a strategy for portfolio risk management by inferring extreme movements in financial markets. The core of the provided strategy is a statistical model for the joint tail distribution that attempts to capture accurately the data generating process through an extremal modelling...

This paper poses a new methodology to estimate the required economic capital for a retail-credit portfolio. The methodology is based on both the general copula concepts and some core results from the extreme value theory (EVT). The main results support the fact that the proposed methodology is...

The numerical calculations of marginal risk contributions associated with the two risk measures, Value-at-Risk and Expected Shortfall, pose challenges due to the rare event character of multiple defaults among obligors in credit portfolios at a high confidence level. We explore various...

Accurate estimation of different risk measures for financial portfolios is of utmost importance equally for financial institutions as well as regulators, however, many existing models fail to incorporate any high dimensional dependence structures adequately. To overcome this problem and capture...