Taming Tail Risk in Financial Markets: Conformal Risk Control for Nonstationary Portfolio VaR
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arXiv
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| Format: | Preprint |
| Veröffentlicht: |
2026
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| _version_ | 1866914304877395968 |
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| author | Schmitt, Marc |
| author_facet | Schmitt, Marc |
| contents | 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. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2602_03903 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Taming Tail Risk in Financial Markets: Conformal Risk Control for Nonstationary Portfolio VaR Schmitt, Marc Risk Management 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. |
| title | Taming Tail Risk in Financial Markets: Conformal Risk Control for Nonstationary Portfolio VaR |
| topic | Risk Management |
| url | https://arxiv.org/abs/2602.03903 |