Risk Management & Tail Risk

We study the impact of regulatory capital constraints on fire sales and financial stability in a large banking system using a mean field game model. In our model banks adjust their holdings of a risky asset via trading strategies with finite trading rate in order to maximize expected profits. Moreov

In recent years, it has become apparent that an isolated microprudential approach to capital adequacy requirements of individual institutions is insufficient. It can increase the homogeneity of the financial system and ultimately the cost to society. For this reason, the focus of the financial and m

Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress, enabling crises to proliferate across a broad spectrum of seemingly

We propose a new measure of systemic risk to analyze the impact of the major financial market turmoils in the stock markets from 2000 to 2023 in the USA, Europe, Brazil, and Japan. Our Implied Volatility Realized Volatility Systemic Risk Indicator (IVRVSRI) shows that the reaction of stock markets v

We define and develop an approach for risk budgeting allocation - a risk diversification portfolio strategy - where risk is measured using a dynamic time-consistent risk measure. For this, we introduce a notion of dynamic risk contributions that generalise the classical Euler contributions and which

The diversification quotient (DQ) is recently introduced for quantifying the degree of diversification of a stochastic portfolio model. It has an axiomatic foundation and can be defined through a parametric class of risk measures. Since the Value-at-Risk (VaR) and the Expected Shortfall (ES) are the

This paper introduces the Lambda extension of the Rényi entropic value-at-risk ($Λ$-EVaR), a novel family of risk measures that unifies the flexible confidence level structure of the $Λ$-framework with the higher-moment sensitivity of EVaR. We define $Λ$-EVaR, establish its foundational properties i

Post-hoc explainability is central to credit risk model governance, yet widely used tools such as coefficient-based attributions and SHapley Additive exPlanations (SHAP) often produce numerical outputs that are difficult to communicate to non-technical stakeholders. This paper investigates whether l

Dealers in foreign exchange markets provide bid and ask prices to their clients at which they are happy to buy and sell, respectively. To manage risk, dealers can skew their quotes and hedge in the interbank market. Hedging offers certainty but comes with transaction costs and market impact. Optimal

The efficiency of pension schemes in Kenya invites elevated interest owing to the increasing pension contribution amounts and the expectation that benefits paid out of these schemes would protect members from old age poverty. The study investigates the intervening effect of risk management on the re

This paper presents a derivation of the explicit price for the perpetual American put option time-capped by the first drawdown epoch beyond a predefined level. We consider the market in which an asset price is described by geometric Lévy process with downward exponential jumps. We show that the opti

The increasing development in the consumer credit card market brings substantial regulatory and risk management challenges. The advanced machine learning models applications bring concerns about model transparency and fairness for both financial institutions and regulatory departments. In this study

We introduce a new actuarial tail-shape index, the $θ$-index, based on a probability equal level relationship between Value at Risk and Expected Shortfall. The index is defined at each tail probability level as the parameter value for which Value at Risk coincides with Flexible Expected Shortfall, t

We consider the problems of estimation and optimization of two popular convex risk measures: utility-based shortfall risk (UBSR) and Optimized Certainty Equivalent (OCE) risk. We extend these risk measures to cover possibly unbounded random variables. We cover prominent risk measures like the entrop

What if the main data protection vulnerability is risk management? Data Protection merges three disciplines: data protection law, information security, and risk management. Nonetheless, very little research has been made on the field of data protection risk management, where subjectivity and superfi

This paper explores optimal insurance solutions based on the Lambda-Value-at-Risk ($Λ\VaR$). If the expected value premium principle is used, our findings confirm that, similar to the VaR model, a truncated stop-loss indemnity is optimal in the $Λ\VaR$ model. We further provide a closed-form express

In this paper, we study dependence uncertainty and the resulting effects on tail risk measures, which play a fundamental role in modern risk management. We introduce the notion of a regular dependence measure, defined on multi-marginal couplings, as a generalization of well-known correlation statist

This paper provides the first and second order derivatives of any risk measures, including VaR and ES for continuous and discrete portfolio loss random variable variables. Also, we give asymptotic results of the first and second order conditional moments for heavy-tailed portfolio loss random variab

Horizon risk (see arXiv:2301.04971) is studied in the context of cash non-additive fully-dynamic risk measures induced by BSDEs. Furthermore, we introduce a risk measure based on generalized Tsallis entropy which can dynamically evaluate the riskiness of losses considering both horizon risk and inte

Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank’s full balance sheet conditional on a macroeconomic scenario over multiple years. Part of the c