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In this paper we propose a multivariate quantile regression framework to forecast Value at Risk (VaR) and Expected Shortfall (ES) of multiple financial assets simultaneously, extending Taylor (2019). We generalize the Multivariate Asymmetric Laplace (MAL) joint quantile regression of Petrella and Raponi (2019) to a time-varying setting, which allows us to specify a dynamic process for the evolution of both VaR and ES of each asset. The proposed methodology accounts for the dependence structure among asset returns. By exploiting the properties of the MAL distribution, we then propose a new portfolio optimization method that minimizes the portfolio risk and controls for well-known characteristics of financial data. We evaluate the advantages of the proposed approach on both simulated and real data, using weekly returns on three major stock market indices. We show that our method outperforms other existing models and provides more accurate risk measure forecasts compared to univariate ones.
We study the optimal portfolio allocation problem from a Bayesian perspective using value at risk (VaR) and conditional value at risk (CVaR) as risk measures. By applying the posterior predictive distribution for the future portfolio return, we deriv
We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are implemented with
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.
Common asset holding by financial institutions, namely portfolio overlap, is nowadays regarded as an important channel for financial contagion with the potential to trigger fire sales and thus severe losses at the systemic level. In this paper we pro
In this paper, we investigate the optimal management of defined contribution (abbr. DC) pension plan under relative performance ratio and Value-at-Risk (abbr. VaR) constraint. Inflation risk is introduced in this paper and the financial market consis