We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Co…
On-device research index
arXiv research
A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
168,657 papers · 148 categories
Trend · papers per month
48 results for “Portfolio Loss”
Derivatives of Risk Measuresq-fin.RM
Derives derivatives of risk measures for various types of portfolio losses.
problem Calculating precise risk measures for portfolio losses.
method Analyzes first and second order derivatives of risk measures for both continuous and discrete portfolio loss scenarios.
result Provides asymptotic results for conditional moments of heavy-tailed portfolio losses.
The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We analytically calculate the m…
Model predicts credit portfolio losses with contagion effects.
problem Predicting credit portfolio losses with contagion effects.
method Introduced a model with a recursive algorithm and flexible distributions.
result Good fit for synthetic CDO tranches of the iTraxx index.
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distribut…
We prove a law of large numbers for the loss from default and use it for approximating the distribution of the loss from default in large, potentially heterogenous portfolios. The density of the limiting measure is shown to solve a non-linear SPDE, and the moments of the limiting measure are shown to satisfy an infinit…
We consider an investor facing a classical portfolio problem of optimal investment in a log-Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies that reduce a dynamic shortfall risk measure. For continuous- and discrete-time financial markets we investigate the loss i…
Investors face constraints in Heston's model; optimal allocation differs from naive capped strategy.
problem Optimizing portfolio allocation with convex constraints in Heston's stochastic volatility model.
method Applied duality methods to derive a closed-form solution.
result The optimal constrained portfolio allocation differs from the naive capped portfolio, leading to different wealth outcomes.
This paper proposes a new methodology to compute Value at Risk (VaR) for quantifying losses in credit portfolios. We approximate the cumulative distribution of the loss function by a finite combination of Haar wavelets basis functions and calculate the coefficients of the approximation by inverting its Laplace transfor…
This paper calculates worst-case target semi-variances for uncertain losses.
problem Managing risk when loss distribution is uncertain and only partial information is known.
method Derives worst-case target semi-variances for symmetric or non-negative losses under uncertainty sets representing investor's undesirable scenarios.
result Closed-form expressions for worst-case target semi-variances are derived.
Framework for systemic risk modeling using jointly exchangeable arrays.
problem Systemic risk in insurance portfolios with interactions.
method Jointly exchangeable arrays, central limit theorems, simulation-based validation.
result Asymptotic approximations for total portfolio losses in large portfolios over long time horizons.
A new portfolio model considers investor aversion to loss and risk.
problem Constructing a robust portfolio under uncertain asset returns and investor aversion.
method Distributional robust optimization (DRP) with a Wasserstein ball centered on empirical distribution, mixed-integer quadratic programming, and hybrid algorithm.
result Empirical testing shows superior performance in asset allocation compared to common strategies.
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events accounting for correlations between the default events and the associated losses. We…
A Fast Algorithm for Computing Expected Loan Portfolio Tranche Loss in the Gaussian Factor Modelmath.NA
We propose a fast algorithm for computing the expected tranche loss in the Gaussian factor model. We test it on a 125 name portfolio with a single factor Gaussian model and show that the algorithm gives accurate results. We choose a 125 name portfolio for our tests because this is the size of the standard DJCDX.NA.HY p…
Paper analyzes high-dimensional portfolio risks and finds empirical out-of-sample relative loss is more reliable.
problem Analyzing risks in high-dimensional portfolios using empirical variance.
method Derives asymptotic behavior of out-of-sample variance and relative loss in high-dimensional settings.
result Empirical out-of-sample relative loss is more reliable than variance in high-dimensional portfolios.
We study the impact of contagion in a network of firms facing credit risk. We describe an intensity based model where the homogeneity assumption is broken by introducing a random environment that makes it possible to take into account the idiosyncratic characteristics of the firms. We shall see that our model goes behi…
Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss distribution. For many of the credit portfolio risk models used in practice, the VaR c…
The paper optimizes stock portfolios with constraints based on performance attribution.
problem Optimizing stock portfolios with performance attribution constraints.
method Minimizes expected tail loss, constrains asset allocation and selection effect, tests on Dow Jones stocks.
result Imposing constraints on asset allocation and selection effect improves portfolio performance.
The paper examines the unexpected losses and risk ratios for co-monotonic alternatives in large portfolios.
problem Understanding the unexpected losses and risk ratios for large portfolios with co-monotonic alternatives.
method Analyzes the asymptotic behavior of unexpected losses and risk ratios for co-monotonic alternatives using monotone cash-additive risk measures and Choquet insurance premia.
result Unexpected losses of large weighted portfolios are of order , where is the average weight.
The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions conditional on default events by means of Monte Carlo simulation, it becomes imp…
This paper explores portfolio management strategies to maximize alpha and minimize beta.
problem Maximizing returns while minimizing risk in investment portfolios.
method Examines asset allocation, diversification, active management, and risk management strategies.
result Combining these strategies optimizes portfolio performance.
Central Counterparty Riskq-fin.RM
A clearing member of a Central Counterparty (CCP) is exposed to losses on their default fund and initial margin contributions. Such losses can be incurred whenever the CCP has insufficient funds to unwind the portfolio of a defaulting clearing member. This does not necessarily require the default of the CCP itself. In …
Computing risk measures of a financial portfolio comprising thousands of derivatives is a challenging problem because (a) it involves a nested expectation requiring multiple evaluations of the loss of the financial portfolio for different risk scenarios and (b) evaluating the loss of the portfolio is expensive and the …
New bounds for online portfolio selection without smoothness assumptions.
problem Online portfolio selection with non-Lipschitz, non-smooth losses.
method Data-dependent bounds using novel smoothness characterizations and FTRL with self-concordant regularizers.
result Achieves logarithmic regrets when data is 'easy' and sublinear worst-case regrets.
Study large deviations in life insurance portfolios without identical distributions.
problem Large deviations in life insurance portfolios with bounded losses and variances.
method Upper bound from standard large deviations, counterexample for full large deviation principle.
result Exponential bound for average loss exceeding a threshold.
Investigates how options can control systemic risk in portfolios.
problem Systemic risk in optioned portfolios.
method Correlation hedging, extreme loss hedging, and SOCP formulation.
result Options can make systemic risk controllable and enhance return-risk performance.
This paper evaluates various loss functions for Transformer models in stock ranking.
problem Evaluating loss functions for Transformer models in stock ranking.
method Systematic evaluation of advanced loss functions (pointwise, pairwise, listwise) on S&P 500 data.
result Different loss functions impact a model's ability to discern profitable relative orderings among assets.
Deep learning Profit & Lossq-fin.RM
A method for predicting profit and loss distributions of complex financial portfolios using neural networks.
problem Predicting profit and loss distributions for portfolios with non-linear and path-dependent derivatives.
method Least Square Monte Carlo algorithm with a feed forward neural network for interpolation of continuation values.
result Flexible and automatic accounting of multiple assets in financial portfolios.
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the Australian banking sector against insolvency. We outline the mathematical foundations of regulatory capital for credit risk, and extend the model specification of the IRB approach to a more g…
This paper considers portfolio construction in a dynamic setting. We specify a loss function comprised of utility and complexity components with an unknown tradeoff parameter. We develop a novel regret-based criterion for selecting the tradeoff parameter to construct optimal sparse portfolios over time.
Paper compares credit portfolio risks using robust Bernoulli mixture models.
problem Tackles risk bounds and comparison of credit portfolio losses.
method Uses Bernoulli mixture models with conditional independence and stochastic increasing defaults.
result Provides conditions for comparing conditional default probabilities and portfolio losses.
Calculating Value-at-Risk contributions in CreditRisk+cond-mat.stat-mech
Credit Suisse First Boston (CSFB) launched in 1997 the model CreditRisk+ which aims at calculating the loss distribution of a credit portfolio on the basis of a methodology from actuarial mathematics. Knowing the loss distribution, it is possible to determine quantile-based values-at-risk (VaRs) for the portfolio. An o…
New methods show sparse portfolios offer no advantage over mean-variance in diversification.
problem Investment diversification and risk management with sparse portfolios.
method Developed and implemented a new estimation procedure for sparse second-order stochastic spanning using a greedy algorithm and Linear Programming.
result No benefit from expanding a sparse opportunity set beyond 45 assets; optimal sparse portfolio reduces tail risk.
Unified framework for portfolio optimization using multiple hypotheses.
problem Risk diversification in portfolio allocation.
method Structured ensemble learning approach with diversity control.
result Structured ensembles link predictor diversity to risk diversification.
We study portfolio selection in a model with both temporary and transient price impact introduced by Garleanu and Pedersen (2016). In the large-liquidity limit where both frictions are small, we derive explicit formulas for the asymptotically optimal trading rate and the corresponding minimal leading-order performance …
New algorithm predicts ranked stock lists for long-short portfolios.
problem Constructing effective long-short stock portfolios using machine learning.
method Proposes a new listwise learn-to-rank loss function to emphasize top and bottom of a rank list.
result Demonstrates superior performance in constructing long-short portfolios with a 38% annual return.
We analyze systems of agents sharing light-tailed risky claims issued by different financial objects. Assuming exponentially distributed claims, we obtain that both agents' and system's losses follow generalized exponential mixture distributions. We show that this leads to qualitatively different results on individual …
The probability minimizing problem of large losses of portfolio in discrete and continuous time models is studied. This gives a generalization of quantile hedging presented in [3].
DeepFolio uses neural networks to predict stock price movements from LOB data.
problem Predicting price movements from LOB data.
method Convolutional Neural Networks (CNNs) for portfolio management.
result DeepFolio outperforms state-of-the-art models in various scenarios.
BSLP is a two-dimensional dynamic model of interacting portfolio-level loss and spread (more exactly, loss intensity) processes. The model is similar to the top-down HJM-like frameworks developed by Schonbucher (2005) and Sidenius-Peterbarg-Andersen (SPA) (2005), however is constructed as a Markovian, short-rate intens…
Quantum GBS boosts asset clustering for robust statistical arbitrage portfolios.
problem Identifying co-moving assets from correlation matrices for statistical arbitrage.
method Mapping S&P 500 correlation data to GBS-compatible adjacency matrices, benchmarking classical and quantum clustering algorithms.
result Quantum GBS generates superior alpha during high volatility periods, persisting under low-loss conditions.
The paper introduces a US crime index to assess financial losses from property and cyber crimes.
problem Lack of indices evaluating crime's financial impact on investments.
method Developed an index-based insurance portfolio using FBI financial losses data.
result Real estate, ransomware, and government impersonation are major risk contributors.
We extend the Vasiček loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and analyze its properties. We find that the impact of liability risk is ambiguous and …
For a functionally generated portfolio, there is a natural decomposition of the relative log-return into the log-change in the generating function and a drift process. In this note, this decomposition is extended to arbitrary stock portfolios by an application of Fisk-Stratonovich integration. With the extended methodo…
Using an extended version of the credit risk model CreditRisk+, we develop a flexible framework with numerous applications amongst which we find stochastic mortality modelling, forecasting of death causes as well as profit and loss modelling of life insurance and annuity portfolios which can be used in (partial) intern…
Portfolio credit risk with Archimedean copulas: asymptotic analysis and efficient simulationq-fin.RM
The paper analyzes portfolio credit risk using Archimedean copulas and introduces efficient simulation methods.
problem Analyzing large losses from credit portfolio defaults with Archimedean copulas.
method Derives asymptotic results and develops variance reduction algorithms for Monte Carlo simulations.
result Proposed algorithms significantly enhance classical Monte Carlo methods for estimating portfolio credit risk.
In this paper, we search for optimal portfolio strategies in the presence of various risk measure that are common in financial applications. Particularly, we deal with the static optimization problem with respect to Value at Risk, Expected Loss and Expected Utility Loss measures. To do so, under the Black- Scholes mode…
Optimizes loan recovery timing by forecasting cash flows.
problem Minimizing overall credit loss in loan portfolios.
method Forecast future cash flows using probabilistic and Markov chain models.
result Empirical illustration of loss-optimal recovery timing.