Tail Value-at-Risk-Based Expectiles for Extreme Risks and Their Application in Distributionally Robust Portfolio Selections

  • Haoyu Chen
  • , Kun Fan*
  • *Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Empirical evidence suggests that financial risk has a heavy-tailed profile. Motivated by recent advances in the generalized quantile risk measure, we propose the tail value-at-risk (TVaR)-based expectile, which can capture the tail risk compared with the classic expectile. In addition to showing that the risk measure is well-defined, the properties of TVaR-based expectiles as risk measures were also studied. In particular, we give the equivalent characterization of the coherency. For extreme risks, usually modeled by a regularly varying survival function, the asymptotic expansion of a TVaR-based expectile (with respect to quantiles) was studied. In addition, motivated by recent advances in distributionally robust optimization in portfolio selections, we give the closed-form of the worst-case TVaR-based expectile based on moment information. Based on this closed form of the worst-case TVaR-based expectile, the distributionally robust portfolio selection problem is reduced to a convex quadratic program. Numerical results are also presented to illustrate the performance of the new risk measure compared with classic risk measures, such as tail value-at-risk-based expectiles.

Original languageEnglish
Article number91
JournalMathematics
Volume11
Issue number1
DOIs
StatePublished - Jan 2023

Keywords

  • coherent risk measure
  • distributionally robust optimization
  • expectile
  • heavy-tailed risks
  • worst-case risk measure

Fingerprint

Dive into the research topics of 'Tail Value-at-Risk-Based Expectiles for Extreme Risks and Their Application in Distributionally Robust Portfolio Selections'. Together they form a unique fingerprint.

Cite this