Technical papers - Risk.net
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Technical papersApplying the Cornish–Fisher expansion to value-at-risk estimation in Islamic banking
<p></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This study deliberates upon a proposed delta–gamma sensitivity
analysis–extreme value theory (DGSA–EVT) model that focuses on the assessment of risk exposures represented by the value of value-at-risk (VaR) in three incomegenerating
channels: one in investment, one in financing and one in services. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2420191/applying-the-cornish-fisher-expansion-to-value-at-risk-estimation-in-islamic-banking
http://www.risk.net/journal-of-risk/technical-paper/2420191/applying-the-cornish-fisher-expansion-to-value-at-risk-estimation-in-islamic-bankingFri, 31 Jul 2015 11:55:21 +0100Efficient XVA management: pricing, hedging and allocation
<p><img alt="Frustrated man at the blackboard during a maths class" src="http://www.risk.net/IMG/549/125549/maths-class-original-320x198.jpg" title="" /></p>
<p><!-- subheading --> Kenyon and Green show how certain technical elements simplify XVA management <!-- end-subheading --> <!-- summary --> Banks must manage their trading books, not just value them. Valuing includes valuation adjustments collectively known as
XVA (credit, funding, capital and tax, at least). Here, Chris Kenyon and Andrew Green show how three technical elements
can be combined to radically simplify XVA management, both for calculation and implementation <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2419209/efficient-xva-management-pricing-hedging-and-allocation
http://www.risk.net/risk-magazine/technical-paper/2419209/efficient-xva-management-pricing-hedging-and-allocationWed, 29 Jul 2015 13:07:49 +0100A simple approximation for the no-arbitrage drifts in Libor market model–SABR-family interest-rate models
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper presents a simple approximation for the noarbitrage drifts that appear in Libor market model SABR-family term structure models. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2419577/a-simple-approximation-for-the-no-arbitrage-drifts-in-libor-market-model-sabr-family-interest-rate-models
http://www.risk.net/journal-of-computational-finance/technical-paper/2419577/a-simple-approximation-for-the-no-arbitrage-drifts-in-libor-market-model-sabr-family-interest-rate-modelsWed, 29 Jul 2015 12:15:00 +0100Recursive profit-and-loss sharing
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper develops a new financial product that allows the profit-and-loss sharing (PLS) principle to be enforced recursively in practice. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2419550/recursive-profit-and-loss-sharing
http://www.risk.net/journal-of-risk/technical-paper/2419550/recursive-profit-and-loss-sharingTue, 28 Jul 2015 11:10:00 +0100CVA and FVA with liability-side pricing
<p><img alt="abacus accounting" src="http://www.risk.net/IMG/076/109076/abacus5-320x198.jpg" title="" /></p>
<p><!-- subheading --> Wujiang Lou calculates CVA and FVA abiding by the law of one price <!-- end-subheading --> <!-- summary --> Central to the funding valuation adjustment (FVA) debate is the law of one price. Wujiang Lou finds the fair funding rate for an uncollateralised derivative’s fair value is the liability side’s rate. He presents a liability-side derivatives pricing theory, and a new definition of credit valuation adjustment and FVA conforming to the law <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2419379/cva-and-fva-with-liability-side-pricing
http://www.risk.net/risk-magazine/technical-paper/2419379/cva-and-fva-with-liability-side-pricingMon, 27 Jul 2015 12:17:54 +0100Covered option strategies in Nordic electricity markets
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper deals with the performance of popular option strategies in the Nordic power derivatives market. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2419384/covered-option-strategies-in-nordic-electricity-markets
http://www.risk.net/journal-of-energy-markets/technical-paper/2419384/covered-option-strategies-in-nordic-electricity-marketsMon, 27 Jul 2015 12:03:00 +0100The management of refinancing risk in Islamic banks
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper investigates the risk engendered by maturity mismatches. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk/technical-paper/2418816/the-management-of-refinancing-risk-in-islamic-banks
http://www.risk.net/journal-of-risk/technical-paper/2418816/the-management-of-refinancing-risk-in-islamic-banksWed, 22 Jul 2015 14:45:00 +0100Cutting Edge: Co-simulation of risk factors in power markets
<p><img alt="Co-simulation of risk factors in power markets" src="http://www.risk.net/IMG/341/322341/er-technical-0715-shu-257213170-320x198.jpg" title="By offering full requirements load-serving contracts, LSEs complicate their risk exposure" /></p>
<p><!-- subheading --> A simple but realistic model to co-simulate the time series of temperature, electricity load and prices is proposed <!-- end-subheading --> <!-- summary --> In this article, Jialin Zhao and Sang Baum Kang propose a simple but realistic model
to co-simulate the time series of three risk factors: temperature, electricity load and prices. In addition, the authors provide load-serving entities with a quantitative analysis
of an electricity price-volume joint risk, illustrate a hedging strategy using weather and electricity price derivatives, and price a tailor-made temperature-contingent contract <!-- end-summary --> </p>
http://www.risk.net/energy-risk/technical-paper/2417917/cutting-edge-co-simulation-of-risk-factors-in-power-markets
http://www.risk.net/energy-risk/technical-paper/2417917/cutting-edge-co-simulation-of-risk-factors-in-power-marketsThu, 16 Jul 2015 09:50:00 +0100Cutting edge introduction: Adjoints - maintaining the legacy
<p><img alt="techtree2" src="http://www.risk.net/IMG/934/285934/techtree2-320x198.jpg" title="" /></p>
<p><!-- subheading --> Quants at UBS show how to speed up the calculation of sensitivities without tearing up legacy code <!-- end-subheading --> <!-- summary --> The adjoint method for calculating sensitivities may be quick and cheap, but it requires a top-to-toe overhaul of pricing code. A new technique developed by quants at UBS allows it to be deployed with minimal coding changes. Nazneen Sherif introduces this month’s technical articles <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2415035/cutting-edge-introduction-adjoints-maintaining-the-legacy
http://www.risk.net/risk-magazine/technical-paper/2415035/cutting-edge-introduction-adjoints-maintaining-the-legacyWed, 01 Jul 2015 10:50:00 +0100American options: time-critical pricing
<p><img alt="clock-calculator-shutterstock-20221204" src="http://www.risk.net/IMG/987/320987/clock-calculator-shutterstock-20221204-320x198.jpg" title="" /></p>
<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> Time constraints can be binding for ‘heavy’ Monte Carlo calculations of risk analytics – value-at-risk, potential future exposure, credit valuation adjustment – in intraday risk monitoring, so fast approximations are sometimes preferred. Vladislav Boussyguine and Benoit Rodriguez show how existing semi-analytical pricing methods for American options can yield significant errors, and they propose a robust modification of Ju and Zhong’s method; its accuracy is compared with that of existing methods <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2415128/american-options-time-critical-pricing
http://www.risk.net/risk-magazine/technical-paper/2415128/american-options-time-critical-pricingMon, 29 Jun 2015 06:00:00 +0100Greeks with continuous adjoints: fast to code, fast to run
<p><img alt="Matrix code" src="http://www.risk.net/IMG/560/129560/matrix-background-original-320x198.jpg" title="" /></p>
<p><!-- subheading --> Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs <!-- end-subheading --> <!-- summary --> The continuous adjoint method for computing risk figures of options that can be priced with partial differential equations is elegant, flexible and robust. It can be implemented in legacy codes with minimal code modifications and in particular without using tools such as automatic differentiation. Numerical results on the production environment for foreign exchange options using a local stochastic volatility model show important speed improvements. The authors report their experience of analysing and implementing this technique <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2415103/greeks-with-continuous-adjoints-fast-to-code-fast-to-run
http://www.risk.net/risk-magazine/technical-paper/2415103/greeks-with-continuous-adjoints-fast-to-code-fast-to-runFri, 26 Jun 2015 12:09:50 +0100Indexing multi-asset solutions
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper explores the potential role of multi-asset solutions in the indexing landscape as well as challenges in constructing multi-asset indexes <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2414289/indexing-multi-asset-solutions
http://www.risk.net/journal-of-investment-strategies/technical-paper/2414289/indexing-multi-asset-solutionsWed, 24 Jun 2015 15:48:00 +0100Commodity value-at-risk modeling: comparing RiskMetrics, historic simulation and quantile regression
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors of this paper investigate the risk modeling of commodities. They note that return distributions differ widely across different commodities, both in terms of tail fatness and skewness. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2414407/commodity-value-at-risk-modeling-comparing-riskmetrics-historic-simulation-and-quantile-regression
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2414407/commodity-value-at-risk-modeling-comparing-riskmetrics-historic-simulation-and-quantile-regressionTue, 23 Jun 2015 10:41:00 +0100Exploring shipping inefficiencies in global liquified natural gas trade patterns
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors examine GPS-communicated data on liquefied natural gas (LNG) tanker movements between January 2011 and August 2012 to determine the possible drivers of apparently inefficient shipping routes from producing to consuming countries. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2414405/exploring-shipping-inefficiencies-in-global-liquified-natural-gas-trade-patterns
http://www.risk.net/journal-of-energy-markets/technical-paper/2414405/exploring-shipping-inefficiencies-in-global-liquified-natural-gas-trade-patternsTue, 23 Jun 2015 10:33:00 +0100A combined regime-switching and Black–Litterman model for optimal asset allocation
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors of this paper aim to test empirically the performance of several optimization algorithms that exist in the literature and then compare them, in both a single-regime market and a two-regime market. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2414280/a-combined-regime-switching-and-black-litterman-model-for-optimal-asset-allocation
http://www.risk.net/journal-of-investment-strategies/technical-paper/2414280/a-combined-regime-switching-and-black-litterman-model-for-optimal-asset-allocationMon, 22 Jun 2015 15:25:00 +0100Cave quid optes: waterfalls and central counterparty capital
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper explores the lines of defense of a central counterparty. The author examines the lines of defence ("the waterfall") of a central counterparty (CCP) inter alia in the context of the requirements set by the Principles for Financial Market Infrastructures. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413557/cave-quid-optes-waterfalls-and-central-counterparty-capital
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413557/cave-quid-optes-waterfalls-and-central-counterparty-capitalMon, 22 Jun 2015 12:00:00 +0100Communities and driver nodes in the TARGET2 payment system
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper first describes T2 by means of classic network measures. Then, it applies novel methods developed in network theory to uncover two additional features of T2: driver nodes and communities. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413553/communities-and-driver-nodes-in-the-target2-payment-system
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413553/communities-and-driver-nodes-in-the-target2-payment-systemFri, 19 Jun 2015 11:53:00 +0100Stress testing and modeling of rating migration under the Vasicek model framework: empirical approaches and technical implementation
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper is concerned with stress testing the Vasicek model by extending the correlation structure for nondefault ratings. Two models are proposed. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2413891/stress-testing-and-modeling-of-rating-migration-under-the-vasicek-model-framework-empirical-approaches-and-technical-implementation
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2413891/stress-testing-and-modeling-of-rating-migration-under-the-vasicek-model-framework-empirical-approaches-and-technical-implementationThu, 18 Jun 2015 16:13:00 +0100Are world natural gas markets moving toward integration? Evidence from the Henry Hub and National Balancing Point forward curves
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors of this paper investigate whether the US and UK gas markets are moving toward integration. As well as looking at the cointegration of the Henry Hub and National Balancing Point indexes, the authors also introduce the novel concept of distances between forward curves. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2413860/are-world-natural-gas-markets-moving-toward-integration-evidence-from-the-henry-hub-and-national-balancing-point-forward-curves
http://www.risk.net/journal-of-energy-markets/technical-paper/2413860/are-world-natural-gas-markets-moving-toward-integration-evidence-from-the-henry-hub-and-national-balancing-point-forward-curvesThu, 18 Jun 2015 14:56:00 +0100A dynamic approach to intraday liquidity needs
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper studies the intraday liquidity needs of systemically important entities using simulations of the various Colombian financial market infrastructures (FMIs). The paper shows that if liquidity in another FMI (based on the proprietary positions of government securities) were taken into account, the resulting arrangement would be more robust. <!-- end-summary --> </p>
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413546/a-dynamic-approach-to-intraday-liquidity-needs
http://www.risk.net/journal-of-financial-market-infrastructures/technical-paper/2413546/a-dynamic-approach-to-intraday-liquidity-needsWed, 17 Jun 2015 11:35:00 +0100Transmission of shocks in the integrated accounting framework
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper develops a framework based on integrated national accounting data that aims to capture linkages between different sectors of the economy. The resulting framework provides a useful platform for static policy simulations and shock transmission analysis. <!-- end-summary --> </p>
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412699/transmission-of-shocks-in-the-integrated-accounting-framework
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412699/transmission-of-shocks-in-the-integrated-accounting-frameworkWed, 17 Jun 2015 11:33:00 +0100Backtesting Solvency II value-at-risk models using a rolling horizon
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The author of this paper performs an analysis on a review of the equity stress parameter for Dutch pension funds. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2413209/backtesting-solvency-ii-value-at-risk-models-using-a-rolling-horizon
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2413209/backtesting-solvency-ii-value-at-risk-models-using-a-rolling-horizonMon, 15 Jun 2015 16:28:00 +0100Monitoring IT operational risks across US capital markets
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper suggests an approach for assessing IT risk through an incident-based method for monitoring operational IT risk across an extended enterprise based on the ISACA Risk IT framework. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2413196/monitoring-it-operational-risks-across-us-capital-markets
http://www.risk.net/journal-of-operational-risk/technical-paper/2413196/monitoring-it-operational-risks-across-us-capital-marketsMon, 15 Jun 2015 15:50:00 +0100The global network of payment flows
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper considers a network of cross-border SWIFT message flows where nodes are the countries in which the sending and receiving banks are domiciled. The authors analyze how the payment flows reflect or predict various aspects of the real economies. <!-- end-summary --> </p>
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412697/the-global-network-of-payment-flows
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412697/the-global-network-of-payment-flowsMon, 15 Jun 2015 11:28:00 +0100Quant ideas: Do we need realistic models?
<p><img alt="shu-258534815-virtualrealityglasses-web" src="http://www.risk.net/IMG/229/318229/shu-258534815-virtualrealityglasses-web-320x198.jpg" title="In practice, realistic models are rarely used in risk management" /></p>
<p><!-- subheading --> Realistic models not necessarily a prerequisite for successful risk management <!-- end-subheading --> <!-- summary --> It is often assumed that realistic models are a prerequisite for successful risk management, but this is not necessarily true. While using any model blindly can be extremely dangerous, simple Black-Scholes or Ornstein-Uhlenbeck models are more than sufficient as long as they are properly used <!-- end-summary --> </p>
http://www.risk.net/energy-risk/technical-paper/2412557/quant-ideas-do-we-need-realistic-models
http://www.risk.net/energy-risk/technical-paper/2412557/quant-ideas-do-we-need-realistic-modelsThu, 11 Jun 2015 13:22:56 +0100Granger-causal nonlinear financial networks
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper aims to quantify cascades of price movements in financial markets. It considers nonlinear lead-lag effects with stocks in the S&P 100 as nodes, and it also looks at directed links between the stocks identified through Granger causality. The results and methodology of the paper can be used to build better risk management techniques or new trading algorithms. <!-- end-summary --> </p>
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412690/granger-causal-nonlinear-financial-networks
http://www.risk.net/journal-of-network-theory-in-finance/technical-paper/2412690/granger-causal-nonlinear-financial-networksThu, 11 Jun 2015 11:05:00 +0100Biased benchmarks
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors of this paper contend that recent evidence indicates that benchmarks have, over the last eleven years, exaggerated default risk for nonfinancial corporate entities. <!-- end-summary --> </p>
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2412440/biased-benchmarks
http://www.risk.net/journal-of-risk-model-validation/technical-paper/2412440/biased-benchmarksWed, 10 Jun 2015 10:19:00 +0100Price determinants in the German intraday market for electricity: an empirical analysis
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper looks at hourly electricity prices, specifically in the German intraday market and is one of the first German studies to develop significant intraday estimates of the driving factors, as distinct from day-ahead modeling. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2412429/price-determinants-in-the-german-intraday-market-for-electricity-an-empirical-analysis
http://www.risk.net/journal-of-energy-markets/technical-paper/2412429/price-determinants-in-the-german-intraday-market-for-electricity-an-empirical-analysisWed, 10 Jun 2015 09:41:00 +0100Cutting Edge introduction: Creative stress testing
<p><img alt="techtree1" src="http://www.risk.net/IMG/218/285218/techtree1-320x198.jpg" title="" /></p>
<p><!-- subheading --> New stress-testing method offers a break from decades-old traditio <!-- end-subheading --> <!-- summary --> Quants and decision-makers are often different people – which is all the more obvious in stress testing, where a decision maker’s subjective views on the market have to be able to endure the mathematical rigour of the exercise. Thanks to a new technique, neither party has to compromise. <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2411506/cutting-edge-introduction-creative-stress-testing
http://www.risk.net/risk-magazine/technical-paper/2411506/cutting-edge-introduction-creative-stress-testingTue, 09 Jun 2015 11:00:00 +0100The robustness of estimators in structural credit loss distributions
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper examines the performance of MM, ML and OLS estimators through Monte Carlo experiments for various sample sizes and correlation values when the true data is from non-Gaussian processes. <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2412006/the-robustness-of-estimators-in-structural-credit-loss-distributions
http://www.risk.net/journal-of-credit-risk/technical-paper/2412006/the-robustness-of-estimators-in-structural-credit-loss-distributionsMon, 08 Jun 2015 10:51:00 +0100Bayesian operational risk models
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper proposes a methodology to frame risk self-assessment data into suitable prior distributions that can produce posterior distributions from which accurate operational risk measures. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2411992/bayesian-operational-risk-models
http://www.risk.net/journal-of-operational-risk/technical-paper/2411992/bayesian-operational-risk-modelsMon, 08 Jun 2015 10:30:00 +0100Day-ahead forward premiums in the Texas electricity market
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper looks at forward and spot market-price convergence in the competitive Texas electricity market in the presence of large-scale wind generation. <!-- end-summary --> </p>
http://www.risk.net/journal-of-energy-markets/technical-paper/2411609/day-ahead-forward-premiums-in-the-texas-electricity-market
http://www.risk.net/journal-of-energy-markets/technical-paper/2411609/day-ahead-forward-premiums-in-the-texas-electricity-marketThu, 04 Jun 2015 13:48:00 +0100Trend detection under erroneous observations: application to quantitative financial strategies
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper shows how to handle the problem of trend detection in the context of trend-following trading strategies, when the data is potentially erroneous. The questions raised in this paper are important for many commodity trading advisors, and more broadly for systematic trend-following strategies. <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2410452/trend-detection-under-erroneous-observations-application-to-quantitative-financial-strategies
http://www.risk.net/journal-of-investment-strategies/technical-paper/2410452/trend-detection-under-erroneous-observations-application-to-quantitative-financial-strategiesWed, 03 Jun 2015 12:17:00 +0100Numerical valuation of derivatives in high-dimensional settings via partial differential equation expansions
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper presents a new numerical approach to solving high-dimensional partial differential equations that arise in the valuation of exotic derivative securities. The resulting numerical solutions are carefully compared in terms of accuracy and run time to Monte Carlo methods. <!-- end-summary --> </p>
http://www.risk.net/journal-of-computational-finance/technical-paper/2410444/numerical-valuation-of-derivatives-in-high-dimensional-settings-via-partial-differential-equation-expansions
http://www.risk.net/journal-of-computational-finance/technical-paper/2410444/numerical-valuation-of-derivatives-in-high-dimensional-settings-via-partial-differential-equation-expansionsTue, 02 Jun 2015 11:59:00 +0100Stress testing in non-normal markets via entropy pooling
<p><img alt="Chaos Order" src="http://www.risk.net/IMG/183/272183/chaos-order-320x198.jpg" title="" /></p>
<p><!-- subheading --> Ardia and Meucci introduce a parametric entropy pooling approach to portfolios stress testing <!-- end-subheading --> <!-- summary --> The authors introduce a novel approach to stress testing portfolios of financial assets. The technique extends the parametric entropy pooling approach to skewed and thick-tailed markets. An illustration with a portfolio of European options is presented <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2410967/stress-testing-in-non-normal-markets-via-entropy-pooling
http://www.risk.net/risk-magazine/technical-paper/2410967/stress-testing-in-non-normal-markets-via-entropy-poolingTue, 02 Jun 2015 11:47:27 +0100Default predictors in credit scoring: evidence from France’s retail banking institution
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper presents the set-up of a behavioral credit-scoring model, and estimates such a model using an auto loan data set of one of the largest multinational financial institutions based in France. <!-- end-summary --> </p>
http://www.risk.net/journal-of-credit-risk/technical-paper/2410979/default-predictors-in-credit-scoring-evidence-from-france-s-retail-banking-institution
http://www.risk.net/journal-of-credit-risk/technical-paper/2410979/default-predictors-in-credit-scoring-evidence-from-france-s-retail-banking-institutionMon, 01 Jun 2015 15:44:00 +0100A simple, transparent and rational weighting approach to combining different operational risk data sources
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> The authors propose a generic weighting function based on a nonparametric approach that can be used to weight the different distributions. <!-- end-summary --> </p>
http://www.risk.net/journal-of-operational-risk/technical-paper/2410963/a-simple-transparent-and-rational-weighting-approach-to-combining-different-operational-risk-data-sources
http://www.risk.net/journal-of-operational-risk/technical-paper/2410963/a-simple-transparent-and-rational-weighting-approach-to-combining-different-operational-risk-data-sourcesMon, 01 Jun 2015 15:11:00 +0100Scaling operational loss data and its systemic risk implications
<p><img alt="Digital encryption key" src="http://www.risk.net/IMG/052/170052/digital-encryption-key-320x198.jpg" title="" /></p>
<p><!-- subheading --> A scaling methodology to include external data in operational risk calculation is introduced <!-- end-subheading --> <!-- summary --> Failing to adopt a scaling methodology when including external data in operational risk calculations could lead to a distortion of capital charges and possibly systemic risk in a banking system relying on consortium data. Here, Roberto Torresetti and Claudio Nordio propose a scaling methodology to help overcome these shortcomings and compare the outcome with respect to alternative methodologies on a real operational data sample <!-- end-summary --> </p>
http://www.risk.net/risk-magazine/technical-paper/2410697/scaling-operational-loss-data-and-its-systemic-risk-implications
http://www.risk.net/risk-magazine/technical-paper/2410697/scaling-operational-loss-data-and-its-systemic-risk-implicationsFri, 29 May 2015 14:41:36 +0100Notes on alpha stream optimization
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<p><!-- subheading --> <!-- end-subheading --> <!-- summary --> This paper discusses aspects of optimizing weights for alpha streams (by alpha streams the author means a sequence of predictions of expected returns for each asset given by different models employed by portfolio managers). <!-- end-summary --> </p>
http://www.risk.net/journal-of-investment-strategies/technical-paper/2410447/notes-on-alpha-stream-optimization
http://www.risk.net/journal-of-investment-strategies/technical-paper/2410447/notes-on-alpha-stream-optimizationThu, 28 May 2015 12:05:00 +0100