Risk Measures Research Articles

Risk-Averse Markov Decision Processes Through a Distributional Lens

By adopting a distributional viewpoint on law-invariant convex risk measures, we construct dynamic risk measures (DRMs) at the distributional level. We then apply these DRMs to investigate Markov decision processes, incorporating latent costs, random actions, and weakly continuous transition kernels. Furthermore, the proposed DRMs allow risk aversion to change dynamically. Under mild assumptions, we derive a dynamic programming principle and show the existence of an optimal policy in both finite and infinite time horizons. Moreover, we provide a sufficient condition for the optimality of deterministic actions. For illustration, we conclude the paper with examples from optimal liquidation with limit order books and autonomous driving. Funding: This work was supported by Natural Sciences and Engineering Research Council of Canada [Grants RGPAS-2018-522715 and RGPIN-2018-05705].

Research on safe-haven currencies under global uncertainty —A new perception based on the East Asian market

The backdrop of this research is the high global uncertainty that has amplified the demand for safe-haven assets, particularly in the East Asian market. This paper redefines the concept of a “safe-haven” currency to align with contemporary geopolitical and trade policy uncertainties, diverging from the traditional volatility index (VIX) risk measure. We investigate the risk aversion properties of East Asian currencies under these nonmarket risks using dynamic heterogeneous panel data analysis and robustness checks with double machine learning. Empirical results reveal that no East Asian currency qualifies as a safe haven under geopolitical risk and trade policy uncertainty. However, the Japanese yen (JPY) maintains its status under the VIX indicator. This study highlights the insufficiency of traditional safe havens like the JPY and underscores the importance of considering nonmarket risks, challenging the effectiveness of traditional investment strategies amid modern geopolitical and policy uncertainties. The findings suggest that investors should prioritize nonmarket risks and call for reform in the global monetary system to enhance currency resilience. The novel methodological approach to evaluating safe-haven currencies addresses the need for diversified currency portfolios to mitigate nonmarket risks.

Sex and age characteristics of thunderstorm asthma emergency department visits

Severe asthma has been shown to occur in the combined presence of high pollen and thunderstorm conditions, also known as ‘thunderstorm asthma.’ First studied as severe epidemic events, recent longitudinal work studied less dramatic but more frequent occurrences. We explore thunderstorm asthma-related emergency department visits in the Minneapolis-St. Paul metropolitan area and evaluated risk differences by sex and age. We define a thunderstorm asthma exposure event as the daily occurrence of 2 or more lightning strikes during high pollen periods, and use daily counts of asthma-related emergency department visits to estimate relative and absolute risk of severe asthma during thunderstorm asthma events for the full population and for sex and age subgroups. The overall population had a 1.06 (95 % CI: 1.02, 1.09) times higher risk of asthma-related ED visits during thunderstorm asthma events compared to days without thunderstorm asthma events. Children under 18 show no higher risk (RR 1.02; 95 % CI: 0.97 1.08), but adults 18–44 years (RR 1.08; 95 % CI: 1.02, 1.13) and 45 and up (RR 1.08; 95 % CI 1.02, 1.15) show higher relative risk. Absolute risk measures show similar patterns to the age and sex results, but age-sex subgroups show more variation in absolute vs relative risk. Our results support an association between ED visits and thunderstorm asthma and provide evidence of varying risks by sex across the life course. These differences in risk have implications for clinical treatment of this allergic type of asthma and for future research into this poorly recognized environmental exposure.Plain Language Summary: Recent research has highlighted the existence of Thunderstorm asthma events, a phenomenon in which pollen grains rupture in the conditions that occur with a thunderstorm, releasing sub-pollen particles that are capable of triggering severe asthma in susceptible populations. Where severe asthma is a disease that usually impacts children, we find in this study that asthma ED visits associated with thunderstorm asthma events more frequently impact adults, particularly males 18–44 and females 45 and up.

Perseverance reduces whereas impulsivity increases the risk of reoffending

By law, every criminal verdict describes the norm violation in question. To date, the use of this information for prognostic purposes has been standardized only for sex offenses. This study presents a content-analytic approach to the material. A theory-based coding system allows for systematic tracing of the offender’s affective and regulatory processing during norm violation, targeting the entire action sequence: initial activation affect (positive vs. negative), impulsivity vs. intentionality, affect regulation, and coping with intention-implementation difficulties. In a sample of N = 304 males convicted of violent and/or sexual offenses, the processing variables were investigated with respect to (a) objective measurability, (b) relationships with established reoffending risk markers, and (c) their (incremental) performance in predicting reoffending. With respect to objectivity (a), the inter-rater agreement (n = 111) varied widely among the variables (intraclass correlation range 0.03–0.62). Regarding risk markers (b), significant associations were found with the Level of Service Inventory–Revised (LSI-R) subscales criminal history, alcohol/drugs, emotional/personal, and attitudes/orientation. The Crime Scene Behavior Risk Measure for sexual offenses (n = 106) correlated with psychological processing variables for the items multiple juvenile offenders and male victim. Two variables emerged as relevant for predicting recidivism (c): negatively motivated impulsivity predicted violent reoffending, while persistence when coping with implementation difficulties negatively predicted sexual and general reoffending. These relationships statistically mediated the predictive contribution of actuarial risk tools (LSI-R/crime scene behavior risk). Psychological processes during norm violation as reported in verdicts appear to represent underexploited information within risk assessment and beyond.

Objective acceptability indexes

Based on the financial efficiency and leverage effect, this study classifies the measures of reward, risk, and performance into “simple” and “compound” types. We generalize three problems of observation inconsistency, overleverage deception, and dynamic manipulation behind classical simple measures (such as variability, LPM, VaR, and regression-based measures), and two problems of observation inconsistency and leverage variance behind traditional drawdown-based compound measures. We employ an axiomatic approach to answer the question of what undesirable influences measures should avoid, and complement the axiomatic framework with objective acceptability indexes by separating useless influences that do not add value for investors. We also develop new compound measures to solve the general problems with empirical evidence.

Methodology of Quantitative Assessment of Network Cyber Threats Using a Risk-Based Approach

The methodology of a quantitative assessment of organ- isation’s network cyber threats was developed in order to quanti- tatively assess and compare the cybersecurity threat landscape in conditions of limited data while applying the risk-oriented approach. It can be used either for assessing the level of network cyber threats of a particular organisation (as a quantitative measure of the criti- cality of cyber threats that are detected within the organisation’s network) or for comparing the level of network cyber threats of several organisations during the same or different time periods, giving grounds for supporting the process of making manage- rial decisions regarding the organisation’s cybersecurity strategy. The proposed scheme of the algorithm can be used to automate the calculation process. The assessment of network cyber threats that are considered in the article is not a full-fledged measure of the cyber risk because the methodology was developed consider- ing the common circumstances of the deficiency of the risk context data. Nevertheless, the results of the methodology implementation partially reflect the overall level of the organisation’s cyber risk and are expected to be used in the case when the full-featured proper cyber threats assessment can’t be organised for some reason.

Value of risk aversion in perishable products supply chain management

In this paper, we study optimal procurement and inventory decisions for a supply chain with a single perishable product under demand uncertainty. To control risk, on the one hand, we use a risk-averse objective, and on the other hand, we utilize a chance constraint to satisfy demand with a high probability. We formulate the problem as a two-stage stochastic program with a chance constraint and risk-averse objective, where long-term decisions on pre-positioning products are made in the first stage, while recourse decisions on reallocation and emergency procurement are made in the second stage. To allow for different risk preferences, we incorporate conditional value-at-risk into the objective function and study its combination with the expectation or worst-case of the second-stage costs. To solve the resulting models, we develop various variants of the L-shaped method, based on dual and primal decomposition, and by leveraging the connection between the optimization of coherent risk measures and distributionally robust optimization. Through extensive numerical experiments, we demonstrate the value of risk aversion and present a comparative computational study on the performance of different algorithms.

Assessing risk for severe domestic violence and related homicides perpetrated by partners and in-laws: adapted danger assessments for women in abusive relationships in India

Despite domestic violence and related homicides perpetrated by partners and/or in-laws being a significant public health problem in India, there are no reliable and valid instruments to identify and intervene with women in domestic violence relationships. Continued domestic violence can escalate to severe, near-lethal, or lethal violence or homicide. The Danger Assessment (DA) is a risk assessment instrument designed to assess the likelihood of severe, near-lethal, or lethal violence in abusive relationships. However, the DA is not designed to determine the risk of future severe, near-lethal, or lethal violence by in-laws. In-law abuse plays a significant role in domestic violence-related homicides in India and other countries with similar cultural norms. This study addressed this gap by developing the Danger Assessment for in-laws (DA-L) to assess risk from in-laws, alongside the Danger Assessment for Women in India (DA-WI) to assess risk from partners. The study also examined the psychometric properties of the DA-L and DA-WI. Longitudinal data from 150 women in India were used to measure the reliability and validity of the two versions of the DA. The original DA items and additional risk items were examined using relative risk ratios for their relationship with severe violence at three-month follow-ups. Predictive validity was tested with the receiver operating characteristic curve. The study resulted in reliable and valid measures (11 items DA-L and 26-items DA-WI) of risk. The versions of the DA can be useful for practitioners in India and those working with Indian women in the US and other countries. The DAs can be used for identifying women in domestic violence relationships who are at risk for future severe domestic violence and guide the provision of tailored safety plans.

Firm-level political risk and the firm’s trade credit extension

This paper investigates the influence of firm-level political risk on the firm’s supply of trade credit. Using a novel measure of firm-level political risk developed by Hassan et al. (2019), we find that firm-level political risk has a positive impact on the firm’s trade credit extension. We also demonstrate that our results are not driven by macro financial and political events, firm-level political sentiment and non-political risks, and macro-level economic and political factors. Our result continues to hold after addressing the potential endogeneity concern. Additionally, we find that the positive impact of political risk on trade credit extension is more pronounced for firms selling differentiated goods and services. Furthermore, we demonstrate that extending trade credit enhances firm value when a firm faces higher political risk. This paper highlights the importance of considering firm-level heterogeneity in political risk. It also contributes to the literature on the determinants of trade credit extension and deepens our understanding of the relationship between political risk, trade credit, and corporate performance.

Estimation and backtesting of risk measures with emphasis on distortion risk measures

Estimation and backtesting of risk measures with emphasis on distortion risk measures

Project selection and scheduling with multiplicative enhancement effects and delay risk: An application in intelligent manufacturing technologies

In the realm of intelligent manufacturing, driven by the push towards smart factories and Industry 4.0, optimizing technology selection and sequencing is paramount for intelligent transformation. This complex decision-making process resembles a novel project selection and scheduling problem, characterized by Multiplicative Enhancement Effects (MEEs) where the collective benefits of multiple projects can exceed their individual contributions. Additionally, the uncertain duration of projects further adds complexity. Motivated by these practical challenges, a stochastic mixed-integer programming model that incorporates MEEs and uncertain delays is established. A conditional value-at-risk-based risk measure is integrated to control delay risk. The solution approach leverages an efficient branch and bound-based approach with cutting strategies, integrating a sample average approximation framework and a backward labeling algorithm to handle stochastic elements. A real-world technology implementation case study highlights the advantages of considering MEEs, uncovers myopic biases in technology selection, and identifies implementation patterns centred around core Industry 4.0 technologies. This research enhances our understanding of intelligent manufacturing decision-making, offering valuable insights and practical implications for technology-driven transformations.

Managing ESG ratings disagreement in sustainable portfolio selection

In sustainable portfolio selection, investors have a twofold objective: they want to achieve the best compromise between portfolio risk and return, but they also want to take into account the sustainability of their investment, assessed through some Environmental, Social, and Governance (ESG) evaluation criteria. The inclusion of sustainable goals in the portfolio selection process may have an impact on the portfolio financial performance. ESG scores provided by the rating agencies are generally considered good proxies for the sustainability performance of an investment, as well as appropriate measures for Socially Responsible Investments (SRI). In this framework, the lack of alignment between ratings provided by different agencies is a crucial issue that inevitably undermines the robustness and reliability of these evaluation measures. In fact, the ESG rating disagreement may produce conflicting information, implying difficulty for the investors in the ESG evaluation of their portfolios. This may cause underestimation or overestimation of the market opportunities for a sustainable investment.In this paper, we deal with a multi-criteria portfolio selection problem, taking into account risk, return, and ESG criteria. For the ESG evaluation of the securities, we consider more than one agency and propose a new approach to overcome the problem related to the disagreement between the ESG ratings given by different agencies. For our three-criteria portfolio selection problem, we present an optimization model which adopts the so-called k−sum operator to formulate a concise ESG evaluation measure. The natural formulation of the model, in which the portfolio risk is measured by the variance of its returns, leads to a nonlinear program, but we show that it can be reformulated as an equivalent convex quadratic model. We also show that the model can be generalized to include any convex portfolio risk measures. An extensive empirical analysis of the out-of-sample performance of this model is provided on real-world financial data sets. From a theoretical viewpoint, our work extends the use of k−sum methodology to quadratic programming.

ρ-Arbitrage and ρ-Consistent Pricing for Star-Shaped Risk Measures

This paper revisits mean-risk portfolio selection in a one-period financial market, where risk is quantified by a star-shaped risk measure ρ. We make three contributions. First, we introduce the new axiom of sensitivity to large expected losses and show that it is key to ensure the existence of optimal portfolios. Second, we give primal and dual characterizations of (strong) ρ-arbitrage. Finally, we use our conditions for the absence of (strong) ρ-arbitrage to explicitly derive the (strong) ρ-consistent price interval for an external financial contract.

Postural Stability as a Measure of Fall Risk in Older People with and without HIV.

As the number of older people with HIV (PWH) grows, accidental falls and their associated negative health outcomes are of increasing concern. Fall risk can be measured using novel screening tools such as evaluating postural stability using force plate technology. The aims of this study were to test this technology to assess fall risk among older PWH. In a cross-sectional, observational study of people without HIV (PWoH) with a range of fall risk, participants underwent balance assessment using the validated BTrackS balance plate. Postural stability was compared by HIV serostatus. Multivariable linear regressions were used to examine the relationship between postural stability and validated measures of fall risk balance and frailty status. Among 34 PWH and 30 PWoH, all ≥50 years, postural stability was worse among PWH (35.4 cm vs. 28.3 cm, p = .07). In multivariable models, worse postural stability was associated with reporting a fall in the past 6 months (β = 0.32, p = .004), worse fall efficacy (β = 0.45, p < .001), and being frail or prefrail (β = 0.26, p = .027). In multivariable models stratified by HIV serostatus, worse postural stability was significantly associated with worse fall efficacy (β = 0.53, p < .01) and lower balance confidence (β = -0.33, p =. 04) among PWH but not PWoH. Among older PWH and PWoH, worse postural stability was associated with validated measures of fall risk, including history of falls and poorer fall efficacy. Assessment of postural sway is a promising objective screening test for fall risk among older PWH.

Research Progress on the Risk and Prevention Measures of Peripheral Arterial Catheter Infection in ICU Patients

Peripheral arterial catheter (PAC) is an important assistant method in the treatment of critical patients. However, the related infection risk is significantly underestimated, especially the occurrence of catheter-related bloodstream infections (CRBSI), which also affects the prognosis of patients severely. After literature review, this paper summarized the risk of PAC related infections, PAC retention and maintenance infection prevention measures, and existing problems in PAC related infection research. The progress of intervention measures was collected such as strict adherence to aseptic principles, use of maximum aseptic barrier, selection of arterial puncture site, ultrasound assisted visual puncture, combination of patch and assistant fixation device, shortening of catheter retention period, use of chlorhexidine patch, and regular education and training, to provide scientific and actionable practical guidance for the prevention and control of PAC related infections in clinical practice.

Smoothed semicovariance estimation for portfolio selection

AbstractDownside risk measures, such as semivariance, are essential for evaluating investment risk. Focusing on semivariance allows investors to emphasize loss mitigation without considering upside volatility as risk. However, minimizing the semivariance of a portfolio is an analytically intractable and numerically challenging problem due to the endogeneity of the parameters in the semicovariance matrix. We introduce a methodology for consistent estimation of the portfolio semivariance based on a smooth approximation of the empirical semicovariance matrix. Differently from existing methods, the new estimator does not rely on biased surrogate semicovariance models and enables the treatment of large problems with many assets. The extent of smoothing is determined by a single tuning constant, which allows our method to span an entire set of optimal portfolios with limit cases represented by the minimum semivariance and the minimum variance portfolios. The methodology is implemented through an iteratively reweighted algorithm, which is computationally efficient for high-dimensional problems with many assets. Our numerical studies confirm the theoretical convergence of the smoothed semivariance estimator to the traditional sample semivariance. The resulting minimum smoothed semivariance portfolio performs well in- and out-of-sample compared to other popular selection rules.

Ruin probability for heavy-tailed and dependent losses under reinsurance strategies

The frequency and severity of extreme events have increased in recent years in many areas. In the context of risk management for insurance companies, reinsurance provides a safe solution as it offers coverage for large claims. This paper investigates the impact of dependent extreme losses on ruin probabilities under four types of reinsurance: excess of loss, quota share, largest claims, and ecomor. To achieve this, we use the dynamic GARCH-EVT-Copula combined model to fit the specific features of claim data and provide more accurate estimates compared to classical models. We derive the surplus processes and asymptotic ruin probabilities under the Cramér–Lundberg risk process. Using a numerical example with real-life data, we illustrate the effects of dependence and the behavior of reinsurance strategies for both insurers and reinsurers. This comparison includes risk premiums, surplus processes, risk measures, and ruin probabilities. The findings show that the GARCH-EVT-Copula model mitigates the over- and under-estimation of risk associated with extremes and lowers the ruin probability for heavy-tailed distributions.

Currency tail risk measurement and spillovers: An improved TENET approach

Based on an improved TENET approach, this paper analyses the tail risk of 32 major global currencies and measures the tail risk spillover among these currencies using daily data. We find that (i) The tail risk of USD, EUR, GBP and JPY is relatively high, while CNY shows low risk with a continuous upward trend; (ii) The total tail risk connectedness of currencies declines over time, but spikes during significant events in recent years; (iii) The tail risk spillover of currencies from developed economies is higher than developing economies. Moreover, European and North American currencies primarily exhibit tail risk spillover, while Asian and African (South African) currencies mainly absorb risk from other regions.

On joint marginal expected shortfall and associated contribution risk measures

Systemic risk is the risk that a company- or industry-level risk could trigger a huge collapse of another or even the whole institution. Various systemic risk measures have been proposed in the literature to quantify the domino and (relative) spillover effects induced by systemic risks such as the well-known CoVaR, CoES, MES and CoD risk measures, and associated contribution measures. This paper proposes another new type of systemic risk measure, called the joint marginal expected shortfall (JMES), to measure whether the MES of one entity's risk-taking adds to another one or the overall risk conditioned on the event that the entity is already in some specified distress level. We further introduce two useful systemic risk contribution measures based on the difference function or relative ratio function of the JMES and the conventional ES, respectively. Some basic properties of these proposed measures are studied such as monotonicity, comonotonic additivity, non-identifiability and non-elicitability. For both risk measures and two different vectors of bivariate risks, we establish sufficient conditions imposed on copula structure, stress levels, and stochastic orders to compare these new measures. We further provide some numerical examples to illustrate our main findings. A real application in analyzing the risk contagion among several stock market indices is implemented to show the performances of our proposed measures compared with other commonly used measures including CoVaR, CoES, MES, and their associated contribution measures.

ASSESSMENT OF RISKS AND PROVIDING RECOMMENDATIONS TO MINIMIZE THEIR OCCURRENCE DURING TRANSPORTATION OF CARGO BY RAIL TRANSPORT.

Purpose: To assess the risks of emergency situations and provide recommendations for their minimization during the transportation of goods by rail transport. Method. On the basis of the methods of comparative typology, expert evaluations and system analysis for the route that runs through the industrial districts of Kryvyi Rih, using the methods of analysis of the causes and consequences of a key event, the combined diagram of the Ishikawa tree of a key event, risk maps of a key event, the analysis of hidden and direct priorities was determined indicator of the risk of the complex effect of negative factors of emergency situations during the transportation of heavy metals. The results. the authors identified the most likely causes of the emergency situation: 1) A rocket projectile that damaged the track, as a result of which the spontaneous exit of wagons occurred; 2) Exceeding the speed of a tank train; 3) Icy, which led to an increase in the braking distance and an accident; 4) Neglect of obstacles to movement before the movement of tanks, which in turn can lead to a stoppage of the technological process, cargo spillage and financial losses. A probabilistic risk assessment was carried out on the basis of an expert assessment of the risk operator and measures to reduce the occurrence of emergency situations were proposed with annual costs for them, thousand UAH. After that, a map of probabilistic risk assessment and a map of probabilistic assessment of risk management effects were created, which provide an opportunity for effective management and management of the probable cause of an emergency situation and the selection of financial investments for measures to reduce the occurrence of emergency situations. After that, it was proposed to use the combined wagon model 17-975(01) with all the necessary equipment as a means for quick localization and liquidation of the consequences of spills of emissions of hazardous substances during their transportation by railway transport in the event of an accident. The economic feasibility of using the proposed tool was also substantiated. The scientific novelty consists in the created model for the analysis of the risk assessment of an emergency situation, as well as the identification of possible causes and factors of the occurrence of emergency situations during the transportation of dangerous goods by railway transport, as well as the development of recommendations for their reduction. The practical significance is the implementation of the developed recommendations, based on the created model, for the formation of a special wagon, for operational needs, with the selection of the necessary equipment for the rapid implementation of the 1st stage of localization and liquidation measures.