Technical paper - Risk.net
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en-gbStochastic loss given default and exposure at default in a structural model of portfolio credit riskThe authors develop a factor-type latent variable model for portfolio credit risk that accounts for stochastically dependent probability of default (PD), loss given default (LGD) and exposure at default (EAD) at both the systematic and borrower specific levels. http://www.risk.net/journal-of-credit-risk/3937681/stochastic-loss-given-default-and-exposure-at-default-in-a
http://www.risk.net/journal-of-credit-risk/3937681/stochastic-loss-given-default-and-exposure-at-default-in-aMon, 27 Feb 2017 10:05:47 +0000A structural model for estimating losses associated with the mis-selling of retail banking productsIn this paper, a structural model is presented for estimating losses associated with the mis-selling of retail banking products. It is the first paper to consider factor-based modeling for this operational/conduct risk scenario. http://www.risk.net/journal-of-operational-risk/3937336/a-structural-model-for-estimating-losses-associated-with-the
http://www.risk.net/journal-of-operational-risk/3937336/a-structural-model-for-estimating-losses-associated-with-theFri, 24 Feb 2017 15:52:46 +0000How the interbank market becomes systemically dangerous: an agent-based network model of financial distress propagationIn this paper, the authors study the stability of the interbank market to exogenous shocks using an agent-based network framework. http://www.risk.net/journal-of-network-theory-in-finance/3916981/how-the-interbank-market-becomes-systemically
http://www.risk.net/journal-of-network-theory-in-finance/3916981/how-the-interbank-market-becomes-systemicallyThu, 23 Feb 2017 09:30:00 +0000Reputation risk contagionThe aim of this paper is to assess the effects of the reputation of the members of a group on any single member of the group using the concepts of social influence and convergence in belief. http://www.risk.net/journal-of-network-theory-in-finance/3916926/reputation-risk-contagion
http://www.risk.net/journal-of-network-theory-in-finance/3916926/reputation-risk-contagionWed, 22 Feb 2017 14:29:21 +0000Interconnectedness risk and active portfolio managementThis paper studies centrality (interconnectedness risk) measures and their added value in an active portfolio optimization framework. http://www.risk.net/journal-of-investment-strategies/3916861/interconnectedness-risk-and-active-portfolio-management
http://www.risk.net/journal-of-investment-strategies/3916861/interconnectedness-risk-and-active-portfolio-managementWed, 22 Feb 2017 11:09:37 +0000Risk constraints for portfolio optimization with fixed-fee transaction costIn this paper the authors investigate how fixed-fee transaction costs affect portfolio rebalancing. http://www.risk.net/journal-of-investment-strategies/3916836/risk-constraints-for-portfolio-optimization-with-fixed-fee
http://www.risk.net/journal-of-investment-strategies/3916836/risk-constraints-for-portfolio-optimization-with-fixed-feeWed, 22 Feb 2017 10:55:36 +0000Rating momentum in the macroeconomic stress testing and scenario analysis of credit riskThis paper focuses on the corporate stress testing models for credit risk. http://www.risk.net/journal-of-risk-model-validation/3916491/rating-momentum-in-the-macroeconomic-stress-testing-and
http://www.risk.net/journal-of-risk-model-validation/3916491/rating-momentum-in-the-macroeconomic-stress-testing-andTue, 21 Feb 2017 13:06:58 +0000Standardized measurement approach: is comparability attainable?This paper considers the claim of improved comparability of SMA outcomes by considering the ability to compare “internal loss experience” between banks. http://www.risk.net/journal-of-operational-risk/3915706/standardized-measurement-approach-is-comparability-attainable
http://www.risk.net/journal-of-operational-risk/3915706/standardized-measurement-approach-is-comparability-attainableFri, 17 Feb 2017 11:33:14 +0000Addendum to Rubtsov and Petrov (2016): “A point-in-time–through-the-cycle approach to rating assignment and probability of default calibration”
http://www.risk.net/journal-of-risk-model-validation/3914671/addendum-to-rubtsov-and-petrov-2016-a-point-in-time
http://www.risk.net/journal-of-risk-model-validation/3914671/addendum-to-rubtsov-and-petrov-2016-a-point-in-timeWed, 15 Feb 2017 12:53:32 +0000Operational risk and the three lines of defence in UK financial institutions: is three really the magic number?This paper examines the three lines of defence in the context of ORM in UK financial institutions. http://www.risk.net/journal-of-operational-risk/3914151/operational-risk-and-the-three-lines-of-defence-in-uk-financial
http://www.risk.net/journal-of-operational-risk/3914151/operational-risk-and-the-three-lines-of-defence-in-uk-financialTue, 14 Feb 2017 12:42:03 +0000Investing across periods with Mahalanobis distancesThe authors propose an analytical framework to measure investment opportunities and allocate risk across time based on the Mahalanobis distance. http://www.risk.net/journal-of-investment-strategies/3914131/investing-across-periods-with-mahalanobis-distances
http://www.risk.net/journal-of-investment-strategies/3914131/investing-across-periods-with-mahalanobis-distancesTue, 14 Feb 2017 11:18:06 +0000A model combination approach to developing robust models for credit risk stress testing: an application to a stressed economyThis paper uses a model combination approach to develop robust macrofinancial models for credit risk stress testing. http://www.risk.net/journal-of-risk-model-validation/3913941/a-model-combination-approach-to-developing-robust-models
http://www.risk.net/journal-of-risk-model-validation/3913941/a-model-combination-approach-to-developing-robust-modelsMon, 13 Feb 2017 15:44:06 +0000Hidden Markov regimes in operational loss data: application to the recent financial crisisThe authors propose a method to consider business cycles in the computation of capital for operational risk. http://www.risk.net/journal-of-operational-risk/3912261/hidden-markov-regimes-in-operational-loss-data-application-to
http://www.risk.net/journal-of-operational-risk/3912261/hidden-markov-regimes-in-operational-loss-data-application-toFri, 10 Feb 2017 13:30:43 +0000Statistical risk modelsIn this paper, the authors give complete algorithms and source code for constructing statistical risk models. http://www.risk.net/journal-of-investment-strategies/3912131/statistical-risk-models
http://www.risk.net/journal-of-investment-strategies/3912131/statistical-risk-modelsFri, 10 Feb 2017 12:24:34 +0000Asset correlations and procyclical impactThe authors examine the behavior of asset correlations for companies in Taiwan under the Basel Accord’s asymptotic single-risk-factor approach. http://www.risk.net/journal-of-risk-model-validation/3911741/asset-correlations-and-procyclical-impact
http://www.risk.net/journal-of-risk-model-validation/3911741/asset-correlations-and-procyclical-impactThu, 09 Feb 2017 16:08:46 +0000The application of structural electricity models for dynamic hedgingThe authors formulate a general structural model for an energy market in order to analyze the dynamic hedging of contingent claims on spot electricity prices. http://www.risk.net/journal-of-energy-markets/3903526/the-application-of-structural-electricity-models-for-dynamic
http://www.risk.net/journal-of-energy-markets/3903526/the-application-of-structural-electricity-models-for-dynamicThu, 09 Feb 2017 12:48:31 +0000XVA at the exercise boundaryAndrew Green and Chris Kenyon show how the decision to exercise an option is influenced by XVAs http://www.risk.net/cutting-edge/banking/3847981/xva-at-the-exercise-boundary
http://www.risk.net/cutting-edge/banking/3847981/xva-at-the-exercise-boundaryFri, 03 Feb 2017 13:22:50 +0000Identification and capitalisation of non-modellable risk factorsAdolfo Montoro, Tim Becker and Lars Popken propose techniques for systematically capturing and categorising non-modellable risk factors and risk-adequate aggregation http://www.risk.net/energy-risk/technical-paper/2480845/identification-and-capitalisation-of-non-modellable-risk-factors
http://www.risk.net/energy-risk/technical-paper/2480845/identification-and-capitalisation-of-non-modellable-risk-factorsFri, 27 Jan 2017 13:02:01 +0000Calibration of temperature futures by changing the mean reversionThe authors of this paper study the calibration of futures contracts on temperature indexes. http://www.risk.net/journal-of-energy-markets/2480921/calibration-of-temperature-futures-by-changing-the-mean-reversion
http://www.risk.net/journal-of-energy-markets/2480921/calibration-of-temperature-futures-by-changing-the-mean-reversionFri, 27 Jan 2017 11:00:00 +0000A nonlinear analysis of operational risk events in Australian banksThis paper proposes a methodology applied to complex systems to analyze operational risk events in Australian banks. http://www.risk.net/journal-of-operational-risk/2480856/a-nonlinear-analysis-of-operational-risk-events-in-australian
http://www.risk.net/journal-of-operational-risk/2480856/a-nonlinear-analysis-of-operational-risk-events-in-australianThu, 26 Jan 2017 15:05:00 +0000Financial distress pre-warning indicators: a case study on Italian listed companiesThis paper focuses on the ability of accounting ratios to predict the financial distress status of a firm as defined by the law. http://www.risk.net/journal-of-credit-risk/2480535/financial-distress-pre-warning-indicators-a-case-study-on-italian
http://www.risk.net/journal-of-credit-risk/2480535/financial-distress-pre-warning-indicators-a-case-study-on-italianMon, 23 Jan 2017 08:53:00 +0000Rethinking the margin period of riskThe authors describe a new framework for modeling collateralized exposure under an International Swaps and Derivatives Association Master Agreement with a Credit Support Annex. http://www.risk.net/journal-of-credit-risk/2480534/rethinking-the-margin-period-of-risk
http://www.risk.net/journal-of-credit-risk/2480534/rethinking-the-margin-period-of-riskFri, 20 Jan 2017 15:40:00 +0000Do investors price industry risk? Evidence from the cross-section of the oil industryThis paper analyzes the case of commodity-dependent industries by testing in the case of the oil industry and analyzing whether oil exposure relates to the cross-section of returns. http://www.risk.net/journal-of-energy-markets/2480155/do-investors-price-industry-risk-evidence-from-the-cross-section
http://www.risk.net/journal-of-energy-markets/2480155/do-investors-price-industry-risk-evidence-from-the-cross-sectionWed, 18 Jan 2017 09:00:00 +0000Point-in-time probability of default term structure models for multiperiod scenario loss projectionThe author of this paper proposes a dynamic PD term structure model for multi-period stress testing and expected credit loss estimation. http://www.risk.net/journal-of-risk-model-validation/technical-paper/2480144/point-in-time-probability-of-default-term-structure-models-for-multiperiod-scenario-loss-projection
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2480144/point-in-time-probability-of-default-term-structure-models-for-multiperiod-scenario-loss-projectionMon, 16 Jan 2017 09:00:00 +0000Creditwatches and their impact on financial markets
http://www.risk.net/journal-of-credit-risk/2480236/creditwatches-and-their-impact-on-financial-markets
http://www.risk.net/journal-of-credit-risk/2480236/creditwatches-and-their-impact-on-financial-marketsFri, 13 Jan 2017 09:00:00 +0000Modeling energy spreads with a generalized novel mean-reverting stochastic processIn this paper, the authors investigate the new mean-reverting RW and its continuous-time limit, introduced by Moosavi and Davison (2016). http://www.risk.net/journal-of-energy-markets/technical-paper/2480152/modeling-energy-spreads-with-a-generalized-novel-mean-reverting-stochastic-process
http://www.risk.net/journal-of-energy-markets/technical-paper/2480152/modeling-energy-spreads-with-a-generalized-novel-mean-reverting-stochastic-processThu, 12 Jan 2017 09:00:00 +0000The temporal dimension of riskThis paper mathematically formalizes the concept of a temporal path-dependent risk measure in order to capture the risk associated with the temporal dimension of a stochastic process. http://www.risk.net/journal-risk/2479398/temporal-dimension-risk
http://www.risk.net/journal-risk/2479398/temporal-dimension-riskWed, 11 Jan 2017 09:00:00 +0000International diversification through iShares and their rivalsIn this paper, the authors investigate the diversification benefits of iShares and their rivals (CECFs and American depositary receipts) between April 1996 and December 2004. http://www.risk.net/journal-risk/2479675/international-diversification-through-ishares-and-their-rivals
http://www.risk.net/journal-risk/2479675/international-diversification-through-ishares-and-their-rivalsWed, 11 Jan 2017 09:00:00 +0000Analytical method of computing stressed value-at-risk with conditional value-at-riskThe author of this paper develops an analytical form of stressed value-at-risk (analytical SVaR), using conditional value-at-risk (CoVaR). http://www.risk.net/journal-risk/2479399/analytical-method-computing-stressed-value-risk-conditional-value-risk
http://www.risk.net/journal-risk/2479399/analytical-method-computing-stressed-value-risk-conditional-value-riskWed, 11 Jan 2017 09:00:00 +0000Debt–liquidity shock risk: intertemporal effects and probability measuresThis paper analyzes how the yield of government securities may be managed in order to save costs in the face of the risk of a liquidity shock. http://www.risk.net/journal-risk/2479632/debt-liquidity-shock-risk-intertemporal-effects-and-probability-measures
http://www.risk.net/journal-risk/2479632/debt-liquidity-shock-risk-intertemporal-effects-and-probability-measuresWed, 11 Jan 2017 09:00:00 +0000Crunching mortality and life insurance portfolios with extended CreditRisk+Jonas Hirz, Uwe Schmock and Pavel Shevchenko present a summary of actuarial applications of the extended CreditRisk+
model http://www.risk.net/cutting-edge/investments/2479768/crunching-mortality-and-life-insurance-portfolios-with-extended
http://www.risk.net/cutting-edge/investments/2479768/crunching-mortality-and-life-insurance-portfolios-with-extendedFri, 06 Jan 2017 04:00:00 +0000Systemic risks in CCP networksBarker, Dickinson, Lipton and Virmani propose a credit and liquidity risk model for CCPs http://www.risk.net/cutting-edge/banking/2479766/systemic-risks-in-ccp-networks
http://www.risk.net/cutting-edge/banking/2479766/systemic-risks-in-ccp-networksThu, 05 Jan 2017 10:30:00 +0000Granularity, a blessing in disguise: transaction cycles within real-time gross settlement systemsThe authors of this paper take us into the world of granular time series data. http://www.risk.net/journal-of-financial-market-infrastructures/2479762/granularity-a-blessing-in-disguise-transaction
http://www.risk.net/journal-of-financial-market-infrastructures/2479762/granularity-a-blessing-in-disguise-transactionTue, 20 Dec 2016 14:30:00 +0000I want security: stylized facts about central counterparty collateral and its systemic contextIn this paper, the authors introduce the principal policy issues affecting CCPs and collateral and then use these disclosures to contextualize some stylized facts that may aid in understanding and addressing the policy issues. http://www.risk.net/journal-of-financial-market-infrastructures/2479378/i-want-security-stylized-facts-about-central
http://www.risk.net/journal-of-financial-market-infrastructures/2479378/i-want-security-stylized-facts-about-centralFri, 09 Dec 2016 12:05:00 +0000Smile with the Gaussian term structure modelThis paper presents a natural extension of the LGM that keeps the affine structure and generates an implied volatility smile.
http://www.risk.net/journal-computational-finance/2478931/smile-gaussian-term-structure-model
http://www.risk.net/journal-computational-finance/2478931/smile-gaussian-term-structure-modelWed, 07 Dec 2016 10:40:00 +0000A pairs trading strategy based on switching-regime volatility for commodity futuresA pairs trading strategy on energy, agricultural and index futures uses different parameters according to a volatility regime that is detected using a threshold evaluated in two ways, namely by means of a mixture of two Gaussian densities and a Markov-switching model. When associated to cointegration, this investment algorithm gives a larger Sharpe ratio with respect to classical methods http://www.risk.net/commodities/2479050/pairs-trading-strategy-based-switching-regime-volatility-commodity-futures
http://www.risk.net/commodities/2479050/pairs-trading-strategy-based-switching-regime-volatility-commodity-futuresTue, 06 Dec 2016 11:19:00 +0000Beat equal weighting: a strategy for portfolio optimisationYong (Jimmy) Jin and Lie Wang propose an estimation method for optimal portfolio weights under parameter uncertainty http://www.risk.net/cutting-edge/investments/2478967/beat-equal-weighting-strategy-portfolio-optimisation
http://www.risk.net/cutting-edge/investments/2478967/beat-equal-weighting-strategy-portfolio-optimisationMon, 05 Dec 2016 12:59:00 +0000Elasticity theory of structuringAndrei Soklakov presents a product design theory that incorporates Bayesian information processing and risk aversion http://www.risk.net/cutting-edge/banking/2478978/elasticity-theory-structuring
http://www.risk.net/cutting-edge/banking/2478978/elasticity-theory-structuringMon, 05 Dec 2016 12:45:00 +0000Error analysis in Fourier methods for option pricingThe authors provide a bound for the error committed when using a Fourier method to price European options, when the underlying follows an exponential Lévy dynamic. http://www.risk.net/journal-computational-finance/2478737/error-analysis-fourier-methods-option-pricing
http://www.risk.net/journal-computational-finance/2478737/error-analysis-fourier-methods-option-pricingMon, 05 Dec 2016 09:00:00 +0000On optimizing risk exposures with trend-following strategies in currency overlay portfoliosThis paper proposes using an optimization mechanism in the currency overlay portfolio
construction process. http://www.risk.net/journal-of-investment-strategies/2478867/on-optimizing-risk-exposures-with-trend-following
http://www.risk.net/journal-of-investment-strategies/2478867/on-optimizing-risk-exposures-with-trend-followingFri, 02 Dec 2016 09:01:00 +0000Optimal closing-price strategy: peculiarities and practicalitiesThe authors of this paper derive an optimal trading strategy that benchmarks the closing price in a mean–variance optimization framework. http://www.risk.net/journal-of-investment-strategies/2478869/optimal-closing-price-strategy-peculiarities-and
http://www.risk.net/journal-of-investment-strategies/2478869/optimal-closing-price-strategy-peculiarities-andFri, 02 Dec 2016 09:00:00 +0000How risk managers should fix tracking error volatility and value-at-risk constraints in asset managementIn this paper, the author determines an optimal value for a set of limits composed of the lower limit on TEV, the upper limit on TEV and the upper limit on VaR. http://www.risk.net/journal-risk/2478473/how-risk-managers-should-fix-tracking-error-volatility-and-value-risk
http://www.risk.net/journal-risk/2478473/how-risk-managers-should-fix-tracking-error-volatility-and-value-riskTue, 29 Nov 2016 09:00:00 +0000Interbank network and regulation policies: an analysis through agent-based simulations with adaptive learningThe authors develop an agent-based model to study the impact of a broad range of regulation policies on the banking system. http://www.risk.net/journal-of-network-theory-in-finance/2477966/interbank-network-and-regulation-policies-an-analysis
http://www.risk.net/journal-of-network-theory-in-finance/2477966/interbank-network-and-regulation-policies-an-analysisMon, 28 Nov 2016 09:45:00 +0000Shortfall deviation risk: an alternative for risk measurementIn this paper, the authors propose the SDR risk measure to consider the degree of dispersion of an extreme loss in addition to its expected value. http://www.risk.net/journal-of-risk/2476221/shortfall-deviation-risk-an-alternative-for-risk-measurement
http://www.risk.net/journal-of-risk/2476221/shortfall-deviation-risk-an-alternative-for-risk-measurementWed, 23 Nov 2016 09:00:00 +0000Modeling Alberta power prices through fundamentalsThe authors of this paper model medium- and long-term Alberta power prices by identifying the primary price drivers and characterizing their dynamics in an engineering-based bottom-up model. http://www.risk.net/journal-of-energy-markets/2475576/modeling-alberta-power-prices-through-fundamentals
http://www.risk.net/journal-of-energy-markets/2475576/modeling-alberta-power-prices-through-fundamentalsWed, 23 Nov 2016 09:00:00 +0000Operational risk models and asymptotic normality of maximum likelihood estimationIn this paper, the author studies how asymptotic normality does, or does not, hold for common severity distributions in operational risk models. http://www.risk.net/journal-of-operational-risk/2476193/operational-risk-models-and-asymptotic-normality-of-maximum
http://www.risk.net/journal-of-operational-risk/2476193/operational-risk-models-and-asymptotic-normality-of-maximumWed, 23 Nov 2016 09:00:00 +0000On the role of structural breaks in identifying the dynamic conditional linkages between stock and commodity marketsIn this paper, the authors explore the time-varying linkages between two strategic commodities covering the energy sector (crude oil and natural gas) and the QE Al Rayan Islamic Index over the period March 15, 2011–December 25, 2014. http://www.risk.net/journal-of-energy-markets/2475580/on-the-role-of-structural-breaks-in-identifying-the-dynamic
http://www.risk.net/journal-of-energy-markets/2475580/on-the-role-of-structural-breaks-in-identifying-the-dynamicWed, 23 Nov 2016 09:00:00 +0000The death of one thousand flowers or the AMA reborn?The author of this paper explores the reasons for the pending demise of the advanced measurement approach (AMA) to operational risk. http://www.risk.net/journal-of-operational-risk/2476211/the-death-of-one-thousand-flowers-or-the-ama-reborn
http://www.risk.net/journal-of-operational-risk/2476211/the-death-of-one-thousand-flowers-or-the-ama-rebornWed, 23 Nov 2016 09:00:00 +0000Risk reduction in a time series momentum trading strategyIn this paper, the authors investigate the four most commonly used risk measures – return volatility, beta, value-at-risk and stressed value-at-risk – of a TSM trading strategy. http://www.risk.net/journal-of-risk-model-validation/2476045/risk-reduction-in-a-time-series-momentum-trading-strategy
http://www.risk.net/journal-of-risk-model-validation/2476045/risk-reduction-in-a-time-series-momentum-trading-strategyWed, 23 Nov 2016 09:00:00 +0000Scaling by the square-root-of-time rule: an empirical investigation using five market indexesThis paper analyzes five composite stock indexes to determine the different behaviors of scaling across markets. http://www.risk.net/journal-of-risk/2475516/scaling-by-the-square-root-of-time-rule-an-empirical-investigation-using
http://www.risk.net/journal-of-risk/2475516/scaling-by-the-square-root-of-time-rule-an-empirical-investigation-usingMon, 21 Nov 2016 09:00:00 +0000