Proposes a robust risk measure to minimize capital errors.
problem Minimizing capital determination errors due to risk overestimation and underestimation.
method Uses supremum over probability measures to minimize overestimation and underestimation costs.
result Guarantees the existence of a solution and explores properties of minimizer and minimum as risk and deviation measures.
Proposes a new method for determining LGD discount rates based on cost of capital.
problem Determining an appropriate discount rate for LGD estimation.
method Market-consistent pricing of defaulted loan portfolios to infer discount rates.
result Discount rates reflect both undiversifiable risk and time value of money.
In this paper we see the evolution of a capitalized financial event e, with respect to a capitalization factor f, as the exponential map of a suitably defined Lie group G(f,e), supported by the half-space of capitalized financial events having the same capital sign of e. The Lie group G(f,e) depends upon the capitaliza…
A new approach optimizes capital allocation for firms with multiple business lines.
problem Optimizing capital allocation for firms with multiple business lines, especially considering correlations between lines.
method Introducing a common environmental factor, a Bayesian approach to calibrate latent state distribution, and optimal capital determination.
result Developed an easy-to-implement approach for capital risk management in multi-dimensional insurance risk models.
Optimizes financial decisions with illiquid assets using Kelly criterion.
problem Determining optimal betting strategies in games with external capital constraints.
method Dynamic programming and WKB approximation for multi-round games; Kelly criterion for single-round games.
result Rational players adjust their risk-taking based on the proportion of their capital locked away.
In this paper we propose a look at the capital risk problem inspired by deterministic, known from classical mechanics, problem of juggling. We propose capital equivalents to the Newton's laws of motion and on this basis we determine the most secure form of credit repayment with regard to maximisation of profit. Then we…
Dynamic reinsurance minimizes insurer's cost of capital over time.
problem Minimizing insurer's cost of capital in a dynamic reinsurance setting.
method Dynamic extension of the static optimal reinsurance problem, viewed as a risk-sensitive Markov Decision Process.
result Existence of a stationary Markovian optimal reinsurance policy under an infinite planning horizon.
A dynamical model of capital exchange is introduced in which a specified amount of capital is exchanged between two individuals when they meet. The resulting time dependent wealth distributions are determined for a variety of exchange rules. For ``greedy'' exchange, an interaction between a rich and a poor individual r…
We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of differ…
Fair reinsurance premiums calculated for a perturbed risk model with capital injections.
problem Determining fair reinsurance premiums in a perturbed risk model with capital injections.
method Using a subordinator and Brownian perturbation, an explicit formula for reinsurance premiums is derived.
result An explicit formula for fair reinsurance premiums exists in a specific risk model setting.
In a capital adequacy framework, risk measures are used to determine the minimal amount of capital that a financial institution has to raise and invest in a portfolio of pre-specified eligible assets in order to pass a given capital adequacy test. From a capital efficiency perspective, it is important to identify the s…
In this paper we introduce a new coherent cumulative risk measure on RLp, the space of càdlàg processes having Laplace transform. This new coherent risk measure turns out to be tractable enough within a class of models where the aggregate claims is driven by a spectrally positive Lévy process. Moreover, w…
The sustainability conditions for the market participants with a different ownership model were also determined. It was revealed, that the nonlinear form of the equations describing the market behavior with the prevailing private capital, predetermines the development of such a market according to the subharmonic casca…
Study analyzes factors affecting capital adequacy in Bangladesh's banks.
problem Factors influencing capital adequacy in commercial banks in Bangladesh.
method Fixed Effect, Random Effect, and Pooled Ordinary Least Square (POLS) methods.
result Several independent variables significantly affect capital adequacy, with specific relationships between leverage, liquidity risk, and other factors.
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an important role in computing the capital for both approaches. In this paper we an…
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…
Paper introduces a new method for allocating capital based on risk measures from ruin theory.
problem Allocating capital to manage risk measures derived from ruin theory.
method Introduces a novel allocation method for dynamic value-at-risk (VaR) measures.
result Demonstrates desirable properties and compares with existing methods.
This study uses quantile regression to analyze U.S. firms' capital structure across different leverage levels.
problem Empirical determinants of capital structure adjustment in various macroeconomic states.
method Quantile regression method to investigate firm-specific and macroeconomic characteristics.
result Long-term and short-term debt ratios adjust at different speeds, with short-term debt increasing and long-term debt decreasing over time.
Study examines financial performance determinants of Kenyan microfinance banks.
problem Competition from commercial banks threatens microfinance banks' financial performance.
method Descriptive research design with secondary data analysis.
result Operational efficiency, capital adequacy, and firm size positively correlate with financial performance.
Study examines how insurance affects households prone to proportional losses, especially those near poverty.
problem Impact of insurance on households susceptible to proportional losses, focusing on poverty traps.
method Modelled proportional capital losses with insurance, derived closed formulae and non-local differential equations.
result New formulae and methods to calculate trapping probability, constraints on parameters to prevent certainty of trapping.
One possible way of risk management for an insurance company is to develop an early and appropriate alarm system before the possible ruin. The ruin is defined through the status of the aggregate risk process, which in turn is determined by premium accumulation as well as claim settlement outgo for the insurance company…
The paper models financial markets and real economy interactions using a large agent framework.
problem Understanding capital allocation and accumulation in financial markets and real economy interactions.
method Developed a field-formalism model to analyze interactions between financial markets and real economy with a large number of heterogeneous agents.
result The number of firms in each sector depends on the aggregate financial capital invested and expected long-term returns.
In this paper, we address the aggregation of dependent stop loss reinsurance risks where the dependence among the ceding insurer(s) risks is governed by the Sarmanov distribution and each individual risk belongs to the class of Erlang mixtures. We investigate the effects of the ceding insurer(s) risk dependencies on th…
SHARC explains machine learning risk models for regulatory capital, linking outputs to scenarios.
problem Inability to explain machine learning model outputs to regulatory bodies.
method SHAP-based explainability framework for Hybrid GPR-HS architecture and SVaR stress-testing.
result SHARC links SVaR outputs to scenario inputs, providing auditable traceability.
In this paper we study a spectrally negative Lévy process which is refracted at its running maximum and at the same time reflected from below at a certain level. Such a process can for instance be used to model an insurance surplus process subject to tax payments according to a loss-carry-forward scheme together with t…
ChatGPT scores corporate investment plans, predicting future spending and returns.
problem Measuring and predicting corporate investment plans.
method Created a firm-level ChatGPT investment score based on conference calls.
result The investment score predicts future capital expenditures and returns.
This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistrib…
The paper develops a model using risk-neutral pricing for financial decision-making.
problem Developing a representative agent model for financial decision-making.
method The approach involves using a pricing kernel that is transition independent, solving the eigenpair problem of a second-order differential operator, and finding a one-parameter family of eigenpairs.
result The paper finds a representative agent model derived from the eigenpairs, providing a necessary and sufficient condition for their existence.
The study measures home bias in stock portfolios of emerging and developed markets.
problem Measuring and understanding home bias in stock portfolios across emerging and developed markets.
method An international capital asset pricing model with cross-section econometrics, analyzing 20 countries from 2008 to 2013.
result All countries have high home bias in their stock portfolios, with different factors affecting them.
Framework insures AI actions with reserve capital, preventing loss.
problem Ensuring safety and accountability for AI actions with varying side effects.
method Developed Actuarial Action Interface (AAI) and Authority Frontier to price and gate AI actions.
result Found common refusal and release patterns across domains, with varying required reserve capital.
Study optimizes CT and microinsurance for efficient social protection in low-income countries.
problem Efficient targeting of cash transfers to reduce social protection costs in low-income countries.
method Modelled household capital dynamics using piecewise-deterministic Markov process, derived HJB equation for optimal injection, used dynamic programming.
result Optimal level of capital injection above poverty threshold for cost-effective social protection.
In this paper we propose a novel index to quantify and measure the flow of information on macro and micro scales. We discuss the implications of this index for knowledge management fields and also as intellectual capital that can thus be utilized by entrepreneurs. We explore different function and human oriented metric…
Study uses VC correlation to uncover directional financial relationships.
problem Understanding causal relationships between financial variables.
method Volatility constrained correlation (VC correlation) method.
result Operating income is most influential, while market capitalization and revenue are most susceptible.
Collectivized funds need less initial capital to match individual funds, improving pension adequacy.
problem Determining optimal fund management for diverse investor needs.
method Modeling collectivized investment funds with realistic parameters and demonstrating their superiority over individual funds.
result Collectivized funds require less initial capital to match individual funds, enhancing pension adequacy.
Introduces an asymmetric model for measuring market risk.
problem Existing models are symmetric and do not account for asymmetric risk.
method Develops an asymmetric capital asset pricing model that considers position-dependent market risk.
result Long positions in Apple stock have lower volatility than the market, contrary to the standard model.
This paper examines if CTE risk measure aligns with profit-maximizing risk capital allocations.
problem Whether CTE risk measure aligns with profit-maximizing risk capital allocations.
method Exhaustive probabilistic model settings analysis.
result CTE risk measure may align with profit-maximizing risk capital allocations under certain conditions.
Business cycles affect startup valuations, both directly and indirectly.
problem How do business cycles impact startup valuations?
method Structural Equation Model approach using a dataset of 1,089 venture capital investments.
result Business cycles impact startup valuations both directly and indirectly.
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges monetary exposures between them. Our model captures the strong degree of heterog…
The paper optimizes dividend strategies for companies with assets and liabilities under solvency constraints.
problem Maximizing dividends while adhering to solvency requirements in the face of correlated asset and liability movements.
method Developed verification lemmas to show optimal barrier dividend strategies in two cases: with and without shareholder funding.
result Optimal dividend strategies are barrier-type, derived in closed form and illustrated.
We investigate the impact of capital gains taxes on optimal investment decisions in a quite simple model. Namely, we consider a risk neutral investor who owns one risky stock from which she assumes that it has a lower expected return than the riskless bank account and determine the optimal stopping time at which she se…
We investigate the growth optimal strategy over a finite time horizon for a stock and bond portfolio in an analytically solvable multiplicative Markovian market model. We show that the optimal strategy consists in holding the amount of capital invested in stocks within an interval around an ideal optimal investment. Th…
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky securities into an equivalent but uncorrelated set when short sales are allowed. Whil…
The paper explores capital allocation using Euler formula with VaR and ES, revealing non-monotonicity and providing estimation methods.
problem Non-monotonicity in VaR-based capital allocation and the need for consistent risk measures.
method Use of Euler formula, Value-at-Risk (VaR), Expected shortfall (ES), simulation, and Markov chain Monte Carlo.
result Capital allocation with VaR is not monotonous, and consistent risk measures are crucial.
Study finds stock prices rarely appreciate during capital inflows but often appreciate during normal flows.
problem Understanding stock price behavior during capital inflows and outflows.
method Identified capital flow episodes using threshold and k-means clustering; detected stock index changepoints using PELT method; combined results over identified capital flows.
result Stock prices rarely appreciate during capital inflows but often appreciate during normal flows.
Study on risk sharing in capital requirements for diverse security markets.
problem Risk sharing for capital adequacy tests in heterogeneous security markets.
method Analyzes conditions for a representative agent, studies polyhedral and distribution-based constraints, proves existence of optimal allocations and equilibria.
result Existence of optimal risk allocations and equilibria under different capital adequacy constraints.
Statistical fields model explains capital allocation and accumulation among firms and investors.
problem Understanding capital allocation and accumulation dynamics among firms and investors.
method Applied statistical fields formalism to heterogeneous agents divided into firms and investors.
result Capital accumulation depends on various factors including long-term returns, competition, and stock price volatility.
The Labouchere system increases winning chances but exposes players to significant losses.
problem Improving odds of winning in gambling systems with 1:1 payouts.
method Simulated millions of rounds of Labouchere gambling sequence to analyze outcomes.
result As the number of bets increases, the system's outcomes approach zero.
This study examines how risky investments affect insurance capital valuation.
problem Standard cost-of-capital assumptions do not account for risky investments.
method Analyzed effects of allowing buffer capital investments in risky assets.
result Decomposition of buffer capital contributions varies with riskiness.