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Simulation Methods for Robust Risk Assessment and the Distorted Mix Approach

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  • Sojung Kim
  • Stefan Weber

Abstract

Uncertainty requires suitable techniques for risk assessment. Combining stochastic approximation and stochastic average approximation, we propose an efficient algorithm to compute the worst case average value at risk in the face of tail uncertainty. Dependence is modelled by the distorted mix method that flexibly assigns different copulas to different regions of multivariate distributions. We illustrate the application of our approach in the context of financial markets and cyber risk.

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  • Sojung Kim & Stefan Weber, 2020. "Simulation Methods for Robust Risk Assessment and the Distorted Mix Approach," Papers 2009.03653, arXiv.org, revised Jan 2022.
    • Handle: RePEc:arx:papers:2009.03653
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    References listed on IDEAS

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