Technical paper/Optimisation
Distributionally robust optimization approaches to credit risk management of corporate loan portfolios
A new approach to manage credit risk in financial institutions - the empirical divergence-based distributionally robust optimization - is proposed and shown to alleviate the challenges of sample sparsity and data uncertainty in credit risk modeling.
Mean–variance insurance design under heterogeneous beliefs
The authors investigate a problem of optimal insurance in which the insured and the insure hold heterogenous beliefs concerning loss distribution and demonstrate their results with analytical and numerical examples.
On the potential of arbitrage trading on the German intraday power market
The authors compare ex post arbitrage trading with pair-trading on the German intraday power market and how each method may be optimised.
Sherman ratio optimization: constructing alternative ultrashort sovereign bond portfolios
This paper explores the Sherman ratio and find that it has merit in the optimization of portfolio construction.
Optimal turnover, liquidity and autocorrelation
A novel optimal execution approach via continuous-time stochastic processes is introduced
The loss optimization of loan recovery decision times using forecast cashflows
In this paper, a theoretical method is empirically illustrated in finding the best time to forsake a loan such that the overall credit loss is minimized.
Regularization effect on model calibration
This paper compares two methods to calibrate two popular models that are widely used for stochastic volatility modeling (ie, the SABR and Heston models) with the time series of options written on the Nasdaq 100 index to examine the regularization effect…
An approach to simultaneously assess operational risk and maturity levels in information technology management
The aim of this paper is to investigate the operational risk and maturity level of IT in an anonymized financial institution, based on the American Productivity and Quality Center benchmark and control objectives for information and related technologies.
Optimal electricity distribution pricing under risk and high photovoltaics penetration
The authors model a hierarchical Stackelberg game in a competitive power market under high behind-the-meter photovoltaics penetration and demand-side uncertainty, with emphasis on the feedback loop between distributed generation via photovoltaics and…
The economics of debt collection, with attention to the issue of salience of collections at the time credit is granted
This paper considers the role of policies that protect consumers from aggressive debt collection tactics.
Smaller drawdowns, higher average and risk-adjusted returns for equity portfolios, using options and power-log optimization based on a behavioral model of investor preferences
The authors use a power-log utility optimization algorithm based on a behavioral model of investor preferences, along with either a call or a put option overlay, to reverse the negative skewness of monthly Standard & Poor’s 500 (S&P 500) index returns…
A regime-switching factor model for mean–variance optimization
In this paper the authors formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets.
The impact of shareholders’ limited liability on risk- and value-based management
In this paper, we analyze the consequences of shareholders’ limited liability for the risk- and value-based investment decisions made by a nonlife insurer under solvency constraints.
A simulation-based model for optimal demand response load shifting: a case study for the Texas power market
This paper describes a case study of analyzing DR load-shifting strategies for a retail electric provider for the Texas (ERCOT) market using a Monte Carlo simulation with stochastic loads and settlement prices.
Reduced-form capital optimisation
A linear approximation to an allocation technique provides a solution for banks’ capital managment
Factor investing: get your exposures right!
This paper is devoted to the question of optimal portfolio construction for equity factor investing. The authors discuss the question of multifactor portfolio construction and show that the simplistic approaches often used by practitioners tend to be…
Extending risk budgeting for market regimes and quantile factor models
In this paper, the authors combine several disparate avenues in the literature to create a novel, unified risk-based optimization framework.
A risk-based approach to construct multi asset portfolio solutions
In this paper, the authors introduce an approach to cluster asset classes by correlation distance and then outline how these results can be used to design portfolios that are optimal in a group risk parity (GRP) framework.
Optimising VAR and terminating Arnie-VAR
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
A new nonlinear partial differential equation in finance and a method of its solution
In this paper, the author considers a special type of nonlinear PDE that arises by applying optimization to some financial problems.
Statistical risk models
In this paper, the authors give complete algorithms and source code for constructing statistical risk models.