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Modeling portfolio loss by interval distributions

1 Royal Bank of Canada, 155 Wellington St W, ON M5V 3H6 Toronto, Canada
2 Scotiabank, 4 King St W, ON M5H 1A1 Toronto, Canada
3 Department of statistics, Shenzhen University, 518000 Shenzhen, China

Models for a continuous risk outcome has a wide application in portfolio risk management and capital allocation. We introduce a family of interval distributions based on variable transformations. Densities for these distributions are provided. Models with a random effect, targeting a continuous risk outcome, can then be fitted by maximum likelihood approaches assuming an interval distribution. Given fixed effects, regression function can be estimated and derived accordingly when required. This provides an alternative regression tool to the fraction response model and Beta regression model.
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Keywords interval distribution; model with a random effect; tailed index; expected shortfall; heteroscedasticity; beta regression model; fraction response model; maximum likelihood

Citation: Bill Huajian Yang, Jenny Yang, Haoji Yang. Modeling portfolio loss by interval distributions. Big Data and Information Analytics, 2020, 5(1): 1-13. doi: 10.3934/bdia.2020001

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