Model Uncertainty and Scenario Aggregation

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• Filipovic, D (EPFL - Ecole Polytechnique Fdrale de Lausanne)
• Thursday 28 August 2014, 09:00-09:30
• Seminar Room 1, Newton Institute.

If you have a question about this talk, please contact Mustapha Amrani.

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This paper provides a coherent method for scenario aggregation addressing model uncertainty. It is based on divergence minimization from a reference probability measure subject to scenario constraints. An example from regulatory practice motivates the definition of five fundamental criteria that serve as a basis for our method. Standard risk measures, such as value-at-risk and expected shortfall, are shown to be robust with respect to minimum divergence scenario aggregation. Various examples illustrate the tractability of our method.

This talk is part of the Isaac Newton Institute Seminar Series series.

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