Technical papers - Risk.net
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Technical papersOptimal trading under proportional transaction costs
<p><img alt="buffering-martin-technical-transaction-costs" src="http://www.risk.net/IMG/614/294614/buffering-martin-technical-transaction-costs-320x198.jpg" title="" /></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The theory of optimal trading under proportional transaction costs has been considered from a variety of perspectives. In this paper, Richard Martin shows that all results can be interpreted using a universal law through trading algorithm design <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2356901/optimal-trading-under-proportional-transaction-costs
http://www.risk.net/risk-magazine/technical-paper/2356901/optimal-trading-under-proportional-transaction-costsThu, 24 Jul 2014 12:14:26 +0100Adjoint credit risk management
<p><img alt="Sheet of maths problems" src="http://www.risk.net/IMG/666/115666/maths-320x198.jpg" title="" /></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> Adjoint algorithmic differentiation is one of the principal innovations in risk management in recent times. Luca Capriotti and Jacky Lee show how this technique can be used to compute real-time risk for credit products, even those valued with fast semi-analytical methods, like credit default swaps, indexes and swaptions <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2356909/adjoint-credit-risk-management
http://www.risk.net/risk-magazine/technical-paper/2356909/adjoint-credit-risk-managementWed, 23 Jul 2014 18:03:48 +0100Specification test for threshold estimation in extreme value theory
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<p><!-- subheading --> Volume 9, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> A fundamental component in the modeling of a financial risk exposure is the estimation of the probability distribution function that best describes the true data-generation process of independent and extreme loss events that fall above a certain threshold. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2350138/specification-test-for-threshold-estimation-in-extreme-value-theory
http://www.risk.net/journal-of-operational-risk/technical-paper/2350138/specification-test-for-threshold-estimation-in-extreme-value-theoryMon, 30 Jun 2014 16:48:00 +0100Dissecting the JPMorgan whale: a post-mortem
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<p><!-- subheading --> Volume 9, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> In many respects, the "London whale" scandal at JPMorgan Chase is similar to other "rogue trading" events, in that a group of traders took large, speculative positions in complex derivative securities that went wrong, resulting in over US$6 billion of trading losses to the firm. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2350134/dissecting-the-jpmorgan-whale-a-post-mortem
http://www.risk.net/journal-of-operational-risk/technical-paper/2350134/dissecting-the-jpmorgan-whale-a-post-mortemMon, 30 Jun 2014 16:40:00 +0100Disentangling frequency models
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<p><!-- subheading --> Volume 9, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> An interesting problem arises when describing the frequency of losses in a given time period, due to the fact that the data collection procedure may not distinguish subpopulations of risk sources. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2350131/disentangling-frequency-models
http://www.risk.net/journal-of-operational-risk/technical-paper/2350131/disentangling-frequency-modelsMon, 30 Jun 2014 16:31:00 +0100Comparative analysis of credit risk models for loan portfolios
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<p><!-- subheading --> Volume 8, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> In this paper, the authors compare credit risk models that are used for loan portfolios, both from a theoretical perspective and via simulation studies. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350377/comparative-analysis-of-credit-risk-models-for-loan-portfolios
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350377/comparative-analysis-of-credit-risk-models-for-loan-portfoliosMon, 30 Jun 2014 16:31:00 +0100Fitting operational risk data using limited information below the threshold
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<p><!-- subheading --> Volume 9, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> This paper presents a methodology to calibrate the distribution of losses observed in operational risk events. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2350129/fitting-operational-risk-data-using-limited-information-below-the-threshold
http://www.risk.net/journal-of-operational-risk/technical-paper/2350129/fitting-operational-risk-data-using-limited-information-below-the-thresholdMon, 30 Jun 2014 16:24:00 +0100Backtesting value-at-risk tail losses on a dynamic portfolio
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<p><!-- subheading --> Volume 8, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> Backtesting is an essential component of the implementation and operation of any risk model. As perhaps the most well-known market risk metric, value-at-risk (VaR) has received regulatory, industry and academic backtesting scrutiny. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350372/backtesting-value-at-risk-tail-losses-on-a-dynamic-portfolio
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350372/backtesting-value-at-risk-tail-losses-on-a-dynamic-portfolioMon, 30 Jun 2014 16:21:00 +0100An analytic approach to quantify the sensitivity of CreditRisk+ with respect to its underlying assumptions
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<p><!-- subheading --> Volume 8, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> Credit portfolio models are now widespread across the banking industry. CreditRisk+, originally introduced by Credit Suisse Financial Products in 1997, is one of these models. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350369/an-analytic-approach-to-quantify-the-sensitivity-of-creditrisk-with-respect-to-its-underlying-assumptions
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350369/an-analytic-approach-to-quantify-the-sensitivity-of-creditrisk-with-respect-to-its-underlying-assumptionsMon, 30 Jun 2014 16:15:00 +0100Review, theory and implementation of convertible bonds for commercial investment
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<p><!-- subheading --> Volume 8, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> This technical paper provides a comprehensive literature review of the convertible bond model, as well as discussing the theory behind it and its validation. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350365/review-theory-and-implementation-of-convertible-bonds-for-commercial-investment
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2350365/review-theory-and-implementation-of-convertible-bonds-for-commercial-investmentMon, 30 Jun 2014 16:06:00 +0100Pricing and hedging multiasset spread options using a three-dimensional Fourier cosine series expansion method
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<p><!-- subheading --> Volume 7, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> The aim of this paper is to show the benefit of applying a three-dimensional Fourier cosine series expansion method in order to price and hedge multiasset spread options. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2349521/pricing-and-hedging-multiasset-spread-options-using-a-three-dimensional-fourier-cosine-series-expansion-method
http://www.risk.net/journal-of-energy-markets/technical-paper/2349521/pricing-and-hedging-multiasset-spread-options-using-a-three-dimensional-fourier-cosine-series-expansion-methodMon, 30 Jun 2014 14:35:00 +0100Exchange rates, oil prices and electricity spot prices: empirical insights from European Union markets
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<p><!-- subheading --> Volume 7, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> This study investigates the relationship between daily electricity spot price returns and both the crude oil spot price return (in US dollars) and the exchange rate return in six European countries (France, Germany, Italy, the Netherlands, Spain and the United Kingdom) during the time periods 2005-7 and 2008-11, ie, before and after the contagion of the subprime crisis on European markets. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2349510/exchange-rates-oil-prices-and-electricity-spot-prices-empirical-insights-from-european-union-markets
http://www.risk.net/journal-of-energy-markets/technical-paper/2349510/exchange-rates-oil-prices-and-electricity-spot-prices-empirical-insights-from-european-union-marketsMon, 30 Jun 2014 14:24:00 +0100Evaluating the effects of changing market parameters and policy implications in the German electricity market
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<p><!-- subheading --> Volume 7, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> In this paper the authors introduce a joint model for the electricity spot and the emission market in Germany. The model is used to simulate the effects of changing market parameters and policy implications. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2349505/evaluating-the-effects-of-changing-market-parameters-and-policy-implications-in-the-german-electricity-market
http://www.risk.net/journal-of-energy-markets/technical-paper/2349505/evaluating-the-effects-of-changing-market-parameters-and-policy-implications-in-the-german-electricity-marketMon, 30 Jun 2014 14:14:00 +0100Pricing and hedging options in energy markets using Black-76
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<p><!-- subheading --> Volume 7, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> This paper proves that the prices of options on forwards in commodity markets converge to the Black-76 formula when the short-term variations of the logarithmic spot price are a stationary Ornstein-Uhlenbeck process and the long-term variations are following a drifted Brownian motion. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2349502/pricing-and-hedging-options-in-energy-markets-using-black-76
http://www.risk.net/journal-of-energy-markets/technical-paper/2349502/pricing-and-hedging-options-in-energy-markets-using-black-76Mon, 30 Jun 2014 13:56:00 +0100Asset correlation in residential mortgage-backed security reference portfolios
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<p><!-- subheading --> Volume 10, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> This paper contributes to the literature about estimating asset correlation in two ways... <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2349562/asset-correlation-in-residential-mortgage-backed-security-reference-portfolios
http://www.risk.net/journal-of-credit-risk/technical-paper/2349562/asset-correlation-in-residential-mortgage-backed-security-reference-portfoliosSun, 29 Jun 2014 16:31:00 +0100Estimation of risk measures for large credit portfolios
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<p><!-- subheading --> Volume 10, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> In this paper, saddle point techniques are used in the computation of risk measures for large mark-to-market credit portfolios with stochastic recovery and correlation between obligors depending on the state of the economy. <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2349560/estimation-of-risk-measures-for-large-credit-portfolios
http://www.risk.net/journal-of-credit-risk/technical-paper/2349560/estimation-of-risk-measures-for-large-credit-portfoliosSun, 29 Jun 2014 16:28:00 +0100A credit value adjustment scheme for bank loan portfolios
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<p><!-- subheading --> Volume 10, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> In this study the authors develop an analytical scheme that integrates a large spectrum of typical bank loans and credits, accommodates common bank loan portfolio chronological interdependencies and allows the necessary credit value adjustments (CVAs) for the unilateral default risk exposures of lending institutions both at the individual loan level and at the entire portfolio level. <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2349556/a-credit-value-adjustment-scheme-for-bank-loan-portfolios
http://www.risk.net/journal-of-credit-risk/technical-paper/2349556/a-credit-value-adjustment-scheme-for-bank-loan-portfoliosSun, 29 Jun 2014 16:23:00 +0100Asset correlation of retail loans in the context of the new Basel Capital Accord
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<p><!-- subheading --> Volume 10, Issue 2 (2014) <!-- end-subheading --> <!-- summary --> The approach to the measurement of credit risk recommended by the new Basel Capital Accord (Basel II) gives a wide choice of basic risk estimators. However, the rules for estimating asset correlations are defined in an ambiguous manner. <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2349555/asset-correlation-of-retail-loans-in-the-context-of-the-new-basel-capital-accord
http://www.risk.net/journal-of-credit-risk/technical-paper/2349555/asset-correlation-of-retail-loans-in-the-context-of-the-new-basel-capital-accordSun, 29 Jun 2014 16:21:00 +0100A bill of goods: central counterparties and systemic risk
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<p><!-- subheading --> Volume 2, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> Mandated central clearing of over-the-counter derivatives was a centerpiece of post-crisis efforts to reduce systemic risk. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352031/a-bill-of-goods-central-counterparties-and-systemic-risk
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352031/a-bill-of-goods-central-counterparties-and-systemic-riskSun, 29 Jun 2014 12:44:00 +0100Correspondent Banking in Euro: bank clustering via self-organizing maps
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<p><!-- subheading --> Volume 2, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> Data collected by the Eurosystem is used in this paper to analyze the European Correspondent Banking Market. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352026/correspondent-banking-in-euro-bank-clustering-via-self-organizing-maps
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352026/correspondent-banking-in-euro-bank-clustering-via-self-organizing-mapsSun, 29 Jun 2014 12:37:00 +0100Competition in bank-provided payment services
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<p><!-- subheading --> Volume 2, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system it is important to maintain competition among payment service providers, but data available to gauge the degree of competition is quite limited. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352022/competition-in-bank-provided-payment-services
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2352022/competition-in-bank-provided-payment-servicesSun, 29 Jun 2014 12:33:00 +0100Selection versus averaging of logistic credit risk models
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<p><!-- subheading --> Volume 16, Issue 5 (2014) <!-- end-subheading --> <!-- summary --> The authors evaluate the relative performance of logistic credit risk models that were selected by means of standard stepwise model selection methods and "average" models obtained by Bayesian model averaging (BMA). <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2347969/selection-versus-averaging-of-logistic-credit-risk-models
http://www.risk.net/journal-of-risk/technical-paper/2347969/selection-versus-averaging-of-logistic-credit-risk-modelsSun, 29 Jun 2014 12:13:00 +0100Optimizing the Omega ratio using linear programming
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<p><!-- subheading --> Volume 17, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> The Omega ratio is a recent performance measure. It captures both the downside and upside potentials of the constructed portfolio, while remaining consistent with utility maximization. In this paper, a new approach to compute the maximum Omega ratio as a linear program is derived. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2347959/optimizing-the-omega-ratio-using-linear-programming
http://www.risk.net/journal-of-computational-finance/technical-paper/2347959/optimizing-the-omega-ratio-using-linear-programmingSun, 29 Jun 2014 11:59:00 +0100Pitfalls and solutions in current risk management methodology
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<p><!-- subheading --> Volume 16, Issue 5 (2014) <!-- end-subheading --> <!-- summary --> This paper shows that asymptotic theory does not provide a good approximation for the finite sample distribution of the unconditional coverage test based on the standardized sample mean of the violation sequence. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2347689/pitfalls-and-solutions-in-current-risk-management-methodology
http://www.risk.net/journal-of-risk/technical-paper/2347689/pitfalls-and-solutions-in-current-risk-management-methodologySun, 29 Jun 2014 11:30:00 +0100Diversifying risk parity
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<p><!-- subheading --> Volume 16, Issue 5 (2014) <!-- end-subheading --> <!-- summary --> Striving for maximum diversification, the authors follow the 2009 work of Meucci in measuring and managing a multi-asset class portfolio. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2347710/diversifying-risk-parity
http://www.risk.net/journal-of-risk/technical-paper/2347710/diversifying-risk-paritySun, 29 Jun 2014 11:16:00 +0100Risk evaluation of mortgage-loan portfolios in a low interest rate environment
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<p><!-- subheading --> Volume 16, Issue 5 (2014) <!-- end-subheading --> <!-- summary --> This paper proposes a risk evaluation model for mortgage-loan portfolios within the no-arbitrage framework when interest rates are very low, as in the current Japanese economy. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2347704/risk-evaluation-of-mortgage-loan-portfolios-in-a-low-interest-rate-environment
http://www.risk.net/journal-of-risk/technical-paper/2347704/risk-evaluation-of-mortgage-loan-portfolios-in-a-low-interest-rate-environmentSun, 29 Jun 2014 11:07:00 +0100Adjoint algorithmic differentiation: calibration and implicit function theorem
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<p><!-- subheading --> Volume 17, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> Adjoint algorithmic differentiation is an efficient way to obtain financial instrument price derivatives with respect to the data inputs. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2347676/adjoint-algorithmic-differentiation-calibration-and-implicit-function-theorem
http://www.risk.net/journal-of-computational-finance/technical-paper/2347676/adjoint-algorithmic-differentiation-calibration-and-implicit-function-theoremSun, 29 Jun 2014 10:40:00 +0100The Bayesian roots of risk balancing
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<p><!-- subheading --> Volume 3, Issue 3 (2014) <!-- end-subheading --> <!-- summary --> Risk balancing has been considered a heuristic asset allocation method. In this paper, the authors show that, on the contrary, risk balancing is a special case of a utility optimization problem with log regularization that constrains risk concentration. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349975/the-bayesian-roots-of-risk-balancing
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349975/the-bayesian-roots-of-risk-balancingSun, 29 Jun 2014 10:31:00 +0100Credit risk contributions under the Vasicek one-factor model: a fast wavelet expansion approximation
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<p><!-- subheading --> Volume 17, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> Measuring the contribution of individual transactions inside the total risk of a credit portfolio is a major issue in financial institutions. Value-at-risk (VaR) contributions and expected shortfall (ES) contributions have become two popular ways of quantifying these risks. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2347669/credit-risk-contributions-under-the-vasicek-one-factor-model-a-fast-wavelet-expansion-approximation
http://www.risk.net/journal-of-computational-finance/technical-paper/2347669/credit-risk-contributions-under-the-vasicek-one-factor-model-a-fast-wavelet-expansion-approximationSun, 29 Jun 2014 10:29:00 +0100Confidence intervals for the Kelly criterion
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<p><!-- subheading --> Volume 3, Issue 3 (2014) <!-- end-subheading --> <!-- summary --> Investing according to the Kelly criterion will theoretically outperform any other sizing strategy. However, the value of the optimal fraction will generally need to be estimated from empirical data. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349972/confidence-intervals-for-the-kelly-criterion
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349972/confidence-intervals-for-the-kelly-criterionSun, 29 Jun 2014 10:26:00 +0100Risk–return-efficient target-volatility strategies
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<p><!-- subheading --> Volume 3, Issue 3 (2014) <!-- end-subheading --> <!-- summary --> This paper derives a model for analyzing the performance and risk of algorithmic investment strategies that invest in a mixed portfolio of equities and in the money market, based on a frequent rebalancing algorithm that responds to changes in the volatility of the underlying equity market using a predefined response function. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349969/risk-return-efficient-target-volatility-strategies
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349969/risk-return-efficient-target-volatility-strategiesSun, 29 Jun 2014 10:21:00 +0100Two centuries of trend following
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<p><!-- subheading --> Volume 3, Issue 3 (2014) <!-- end-subheading --> <!-- summary --> The authors establish the existence of anomalous excess returns based on trend-following strategies across four asset classes (commodities, currencies, stock indexes and bonds) and over very long time scales. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349968/two-centuries-of-trend-following
http://www.risk.net/journal-of-investment-strategies/technical-paper/2349968/two-centuries-of-trend-followingSun, 29 Jun 2014 10:17:00 +0100Robust calibration of financial models using Bayesian estimators
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<p><!-- subheading --> Volume 17, Issue 4 (2014) <!-- end-subheading --> <!-- summary --> The authors consider a general calibration problem for derivative pricing models, which they reformulate into a Bayesian framework to attain posterior distributions for model parameters. They then show how the posterior distribution can be used to estimate prices for exotic options. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2347657/robust-calibration-of-financial-models-using-bayesian-estimators
http://www.risk.net/journal-of-computational-finance/technical-paper/2347657/robust-calibration-of-financial-models-using-bayesian-estimatorsSun, 29 Jun 2014 10:15:00 +0100Cutting Edge introduction: The trouble with algorithmic execution
<p><img alt="techtree2" src="http://www.risk.net/IMG/934/285934/techtree2-320x198.jpg" title="" /></p>
<p><!-- subheading --> New set-up allows fast, tractable optimisation of trade execution, without neglecting downside risk <!-- end-subheading --> <!-- summary --> The algorithms used for optimal trade execution can be computationally demanding, meaning investors may not be able to address all relevant factors. A new optimisation scheme overcomes this with a specific set-up of the problem. Nazneen Sherif introduces this month’s technical articles <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2351171/cutting-edge-introduction-the-trouble-with-algorithmic-execution
http://www.risk.net/risk-magazine/technical-paper/2351171/cutting-edge-introduction-the-trouble-with-algorithmic-executionThu, 26 Jun 2014 11:21:00 +0100Operational risk modelled analytically
<p><img alt="time-money" src="http://www.risk.net/IMG/232/85232/timemoney-320x198.jpg" title="" /></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> Regulators require banks to use an internal model to compute a capital charge for operational risk, which is thought to be sensitive to assumptions on dependence between losses that still remain a matter of debate. Vivien Brunel proposes an analytical way to quantify this risk, and shows that uniform correlation is a robust assumption for measuring capital charges <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2351794/operational-risk-modelled-analytically
http://www.risk.net/risk-magazine/technical-paper/2351794/operational-risk-modelled-analyticallyThu, 26 Jun 2014 09:48:54 +0100Optimal execution with a price limiter
<p><img alt="cutting-edge-pic-3" src="http://www.risk.net/IMG/126/214126/cutting-edge-pic-3-320x198.jpg" title="" /></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> Balancing the price uncertainty and price impact of large orders is an important issue for many market participants. While classical approaches lead to trading algorithms that are invariably price-path insensitive, in this article, Sebastian Jaimungal and Damir Kinzebulatov demonstrate how price limits set by traders can be incorporated into an optimal trading strategy and show how their approach is both computationally efficient and reduces the downside risks of the trade <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2351797/optimal-execution-with-a-price-limiter
http://www.risk.net/risk-magazine/technical-paper/2351797/optimal-execution-with-a-price-limiterWed, 25 Jun 2014 10:59:45 +0100The properties of expectiles explored
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<p><!-- subheading --> Expectiles’ risk contributions are essentially the same as those of expected shortfall <!-- end-subheading --> <!-- summary --> Expectiles have been mooted as an alternative risk measure to value-at-risk (VAR) and expected shortfall. Here, Richard Martin derives their saddlepoint approximation and shows that their risk contributions are essentially the same as those of expected shortfall <!-- end-summary --> </p>
http://www.risk.net/insurance-risk/technical-paper/2351296/expectiles-behave-as-expected
http://www.risk.net/insurance-risk/technical-paper/2351296/expectiles-behave-as-expectedTue, 24 Jun 2014 10:29:00 +0100Cutting edge intro: CDOs and the risk of risk aversion
<p><img alt="techtree2" src="http://www.risk.net/IMG/934/285934/techtree2-320x198.jpg" title="" /></p>
<p><!-- subheading --> New analysis shows CDOs can withstand high levels of correlation – what they can’t cope with, though, is a sudden change in risk appetite <!-- end-subheading --> <!-- summary --> The failure, and the allure, of collateralised debt obligations (CDOs) is often pinned on the way they were rated and priced, which underestimated risk. However, new analysis shows the products to be more robust than is generally thought. Nazneen Sherif introduces this month’s technical articles <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2346447/cutting-edge-intro-cdos-and-the-risk-of-risk-aversion
http://www.risk.net/risk-magazine/technical-paper/2346447/cutting-edge-intro-cdos-and-the-risk-of-risk-aversionWed, 28 May 2014 17:33:00 +0100Expectiles behave as expected
<p><img alt="risk-contributions" src="http://www.risk.net/IMG/281/290281/risk-contributions-320x198.jpg" title="" /></p>
<p><!-- subheading --> Expectiles' results are analogous to those of value-at-risk and expected shortfall <!-- end-subheading --> <!-- summary --> Expectiles have been mooted as an alternative risk measure to value-at-risk (VAR) and expected shortfall. Here, Richard Martin derives their saddlepoint approximation and shows that their risk contributions are essentially the same as those of expected shortfall <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2347077/expectiles-behave-as-expected
http://www.risk.net/risk-magazine/technical-paper/2347077/expectiles-behave-as-expectedWed, 28 May 2014 17:21:53 +0100