Optimum and Coherent Economic Capital Forecasts with Reinforcement Machine Learning: Evidence from Optimization Algorithms under Long and Short-Sales Multiple Asset Portfolios of Emerging Markets

Mazin A. M. Al Janabi

Chapter 10 in Banking Resilience:New Insights on Corporate Governance, Sustainability and Digital Innovation, 2024, pp 343-389 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter extends research literature associated with modern portfolio risk management techniques, by presenting robust modeling algorithms for nonlinear dynamic asset allocation and management under extreme events of illiquidity and adverse market perspectives. This research study examines, from portfolio managers’ perspective, the performance of liquidity-adjusted risk modeling in obtaining optimum and coherent economic capital structures, subject to the application of meaningful operational and financial constraints. Specifically, this chapter examines robust quantitative modeling methods to optimum economic capital allocation, in a liquidity-adjusted value at risk (L-VaR) framework, particularly from the perspective of trading portfolios that have both long and short-sales trading positions. The empirical results, of emerging Gulf Cooperation Council (GCC) financial markets, strongly confirm the importance of enforcing financially and operationally meaningful nonlinear and dynamic constraints, when they are available, on the L-VaR optimization procedure. The implemented optimization techniques and risk assessment algorithms can aid in advancing risk management practices in emerging markets, particularly in the wake of the 2007–2009 financial turmoil. Furthermore, the proposed risk management technique and optimization algorithms can have important applications for financial technology (FinTech) and reinforcement machine learning in big data environments.

Keywords: Corporate Governance, Board Characteristics, Board Structure, Banking Institutions, Historical Literature Review, Financial Crisis, Bank Risk, CEO, Corporate Social Responsibility, CSR, Bank Efficiency, Board Governance, Board Size, Board Independence, Gender Diversity, Blau Index, Risk-adjusted Bank Performance, Tobin's Q, Return-on-Risk-Adjusted-Capital, Sharpe Ratio, Sortino Ratio, Board Diversity, Bank Risk, Bank Performance, Cost Efficiency, Bank Stability, Cultural Openness, Women Directors, Foreign Directors, Directors Educational Level, Islamic Banks, Board Diversity, Gender Diversity, Gender Quota, Emerging Economy, Bank Outcomes, Attendance, Board Effectiveness, Private Banks, Public Sector Banks, India, Corporate Social Responsibility, ESG, Sustainable Finance, Responsible Investing, Socially Responsible Banks, Risk Management, Stakeholder Engagement, Financial Stability, Sustainability, Firm Value, Climate Finance, Policy Uncertainty, Financial Stability, Climate Risk, Bibliometric Analysis, Financial Markets, Financial Assets, Asset Pricing, Capital Flows, Sustainability, Accruals, Earnings Management, Accounting Value, National Culture , Cultural Dimensions , Collective Intelligence , Secrecy, Intelligence Quotient, International Accounting, Covid-19, Pandemic, Impact, Risk, GCC Banks, GCC Islamic Banks, Conventional Banks, Profitability, Capitalization, Resilience, Asset-based Indicators, Bank, China, Density, Diversification, FinTech, Focus, Income-Based Indicators, Kernel, Quantile Regression, Big Data, Economic Capital, Emerging Markets, FinTech, GARCH-M (1; 1), GCC Financial Markets, Liquidity Risk, Reinforcement Machine Learning, Risk Management, Portfolio Management, Liquidity-Adjusted Value at Risk, Risk Metrics, Risk Spillover Effects, Internet Finance, GARCH Models, VaR Models, CoVaR Models, Securities Firms, COVID-19, Systemic Risks, China, Regulatory Reporting, Systemic Risk, Financial Stability, SupTech, RegTech, Financial Reporting, Algorithmic Data Standards, Blockchain, Financial Crisis, BCBS 239, Banks, Gulf Cooperation Council (GCC), Political Connections, Trade-Off Theory, Pecking Order Theory, Capital Structure, Risk, Profitability, Speed Of Adjustment, Generalized Method of Moments (GMM), Flash Crash, High Frequency Traders, Regulatory Framework, Algorithms, Algorithmic Trading (AT), Financial Market, Capital Market, (search for similar items in EconPapers)
JEL-codes: G21 G3 G34 (search for similar items in EconPapers)
Date: 2024
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