Events

Thursday, April 25, 2019

Thursday, April 25, 2019 — 9:00 AM to Friday, April 26, 2019 — 5:00 PM EDT to Fri, 04/26/2019 - 17:00
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The first Waterloo Conference in Statistics, Actuarial Science, and Finance (WATSAF1). 

About WatSAF

Thursday, April 25, 2019 — 4:00 PM EDT
Damir Filipovic

A Machine Learning Approach to Portfolio Risk Management

Risk measurement, valuation and hedging form an integral task in portfolio risk management for insurance companies and other financial institutions. Portfolio risk arises because the values of constituent assets and liabilities change over time in response to changes in the underlying risk factors. The quantification of this risk requires modeling the dynamic portfolio value process. This boils down to compute conditional expectations of future cash flows over long time horizons, e.g., up to 40 years and beyond, which is computationally challenging. 

This lecture presents a framework for dynamic portfolio risk management in discrete time building on machine learning theory. We learn the replicating martingale of the portfolio from a finite sample of its terminal cumulative cash flow. The learned replicating martingale is in closed form thanks to a suitable choice of the reproducing kernel Hilbert space. We develop an asymptotic theory and prove
convergence and a central limit theorem. We also derive finite sample error bounds and concentration inequalities. As application we compute the value at risk and expected shortfall of the one-year loss of some stylized portfolios.

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