Max Nendel, University of Bielefeld

A parametric approach to the estimation of convex risk functionals based on Wasserstein distance
Oct 3, 2023, 4:30 pm5:30 pm


Event Description

We explore a static setting for the assessment of risk in the context of mathematical finance and actuarial science that takes into account model uncertainty in the distribution of a possibly infinite-dimensional risk factor. We allow for perturbations around a baseline model, measured via Wasserstein distance, and we investigate to which extent this form of probabilistic imprecision can be parametrized. The aim is to come up with a convex risk functional that incorporates a safety margin with respect to nonparametric uncertainty and still can be approximated through parametrized models. The particular form of the parametrization allows us to develop numerical methods, based on neural networks, which give both the value of the risk functional and an approximation of the worst-case perturbation of the reference measure. Finally, we study the problem under additional constraints on the perturbations, namely, a mean and a martingale constraint. We show that, in both cases, under suitable conditions on the loss function, it is still possible to estimate the risk functional by passing to a parametric family of perturbed models, which again allows for a numerical approximation via neural networks. The talk is based on joint work with Alessandro Sgarabottolo.

Event Category
Financial Mathematics Seminar