Risk management
Economic capital model validation: a comparative study
Using a long history of public firm defaults, this study illustrates a validation approach for jointly testing the impact of probability of default and correlation upon economic capital model performance....
Resampling approaches were the first techniques employed to compute a variance for the Gini coefficient. Various authors have demonstrated that estimates of the Gini coefficient can be obtained from a...
We describe a method, based on the Merton model, to improve credit portfolio models by adding to the underlying distributions forward-looking tails deducted through the Bayesian networks technology. Given...
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How banks needs to consider their IT infrastructure
Banks are increasingly using their IT infrastructure to increase their competitive advantage. Learn how this can work in practice.
More Risk management articles
Latest Issue: Volume 7/Number 1, Spring 2013
Steve Satchell Trinity College, University of Cambridge Our journal's subject matter continues to evolve in response to current issues. This is clearly a very healthy process and is of obvious benefit to all associated with The Journal of Risk Model...
Adding prior knowledge to quantitative operational risk models
Our approach is based on the study of the statistical severity distribution of a single loss. We analyze the fundamental issues that arise in practice when modeling operational risk data. We address the statistical problem of estimating an operational...
Adequate communication about operational risk in the business line
While there is an established framework for quantitative modeling of operational risk as a "lingua franca" on an expert level, active operational risk management in the business line as "first line of defense" requires adequate communication with and...
Counterparty risk subject to additional termination event clauses
The credit additional termination event (ATE) clause is a counterparty risk mitigant that allows banks to terminate and close out bilateral derivative contracts if the credit rating of the counterparty falls below the trigger level. Since credit default...
Systemic operational risk: does it exist and, if so, how do we regulate...
Since the global financial crisis, banking regulators and academics have extended the traditional, narrow definition of "systemic risk" to encompass concepts such as "interconnectedness" and "shadow banking". But, at the time of writing, a definition...
Debt structure, market value of firm and recovery rate
This paper examines determinants of creditor recoveries from defaulted debt instruments. First, we argue that to properly measure a debt instrument's relative position in a firm's debt structure, debt pari passu to the instrument must be accounted for....
A comparison of numerical approaches to determine the severity of losses...
Here we present a comparison of the performance of several numerical methods to determine the probability density of the total severity when a model is known. One method is based on the maximum entropy principle applied to fractional moments. The other...
Using market and credit risk analytics to strengthen performance
How are banks improving their risk management techniques?
This handy guide reviews the various steps banks are taking to improve their risk management techniques, looking at the benefits and pitfalls of each one.
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Using market and credit risk analytics to strengthen performance
This white paper reviews the various steps banks are taking to improve their risk management techniques.
How financial services need to consider their IT infrastructure
The global credit crisis exposed the weaknesses inherent in the risk management and IT infrastructures employed by banks.
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