Calculating CVaR and bPOE for common probability distributions with application to portfolio optimization and density estimation (Q2241122)

The authors of the paper are concerned with calculating superquantiles (SQ) and buffered probabilities (bPOE) for various distributions. The main result of the paper is providing closed-form formulas for various commonly used probability distributions (including normal, generalized Pareto, Student, Weibull distributions). In the cases, where finding a closed-form formula for bPOE was impossible, the authors provide a method for calculating it, by solving an equation or an optimization problem. The authors then use the derived formulas in two fields of application: portfolio theory and parameter estimation. The authors present non-classical problems of portfolio optimization, in which one of the criteria is either SQ or bPOE. They consider the possible solutions for these problems for several distributions of asset prices, that are consistent with empirical distributions. The authors formulate the problems and provides hints for solving them. In the last part they propose their own methods for estimation parameters of distribution based on superquantiles. The methods are generalizations of the method of moments and the generalized method of moments. In both cases one choses several probabilities \(\alpha_1, \ldots, \alpha_k\). In the first method one searches for values of parameters for which theoretical superquantiles equal empirical ones. In the second method one minimize a distance between theoretical and empirical quantiles. According to the authors these methods are flexible and allow to fit the tail of a distribution better.