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Taming Tail Risk in Financial Markets: Conformal Risk Control for Nonstationary Portfolio VaR

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  • Marc Schmitt

Abstract

Risk forecasts drive trading constraints and capital allocation, yet losses are nonstationary and regime-dependent. This paper studies sequential one-sided VaR control via conformal calibration. I propose regime-weighted conformal risk control (RWC), which calibrates a safety buffer from past forecast errors using exponential time decay and regime-similarity weights from regime features. RWC is model-agnostic and wraps any conditional quantile forecaster to target a desired exceedance rate. Finite-sample coverage is established under weighted exchangeability, and approximation bounds are derived under smoothly drifting regimes. On the CRSP U.S.\ equity portfolio, time-weighted conformal calibration is a strong default under drift, while regime weighting can improve regime-conditional stability in some settings with modest conservativeness changes.

Suggested Citation

  • Marc Schmitt, 2026. "Taming Tail Risk in Financial Markets: Conformal Risk Control for Nonstationary Portfolio VaR," Papers 2602.03903, arXiv.org.
    • Handle: RePEc:arx:papers:2602.03903
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