Workgroup Financial Mathematics
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Stochastic Root Finding and Efficient Estimation of Utility-Based Shortfall Risk (Stefan Weber)

Abstract

Reliable risk measurement is a key problem for financial institutions and regulatory authorities. The industry standard Value-at-Risk has several deficiencies. Improved risk measures have been suggested and analyzed in the recent literature, but their computational implementation has largely been neglected so far. We propose and investigate stochastic approximation algorithms for the convex risk measure Utility-based Shortfall Risk. Our approach combines stochastic root finding schemes with importance sampling. (The talk is based on joint work with Jörn Dunkel.)