Technical papers
Cutting Edge introduction: risky contributions
Original headline:
Value-at-risk is usually calculated via Monte Carlo simulation, making it difficult to see the contributions from different risks. But in some circumstances approximate formulas can be derived that greatly...
Asset Liability Management
Perturbed Gaussian copula: introducing the skew effect in co-dependence...
Published online only
Gaussian copula models are often used in the industry when single-asset information is quoted but little is known about their joint relation. These models may arise from correlated stochastic Brownian...
Original headline:
The credit value adjustment that crystallises counterparty risk in a derivatives price is generally thought of as an upfront payment, but could equally well be converted into a running premium in appropriate...
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More Technical papers articles
Hybrid correlation matrices
Original headline:
Integrating available implied volatility data into a historical correlation matrix is an essential part of calibrating a Monte Carlo credit value adjustment pricing simulation at the portfolio level, but can yield nonsensical results. Someshwar Roy and...
Analytical risk contributions for non-linear portfolios
Original headline:
The value-at-risk of portfolios needs to account for non-linear effects in the loss distribution’s dependence on risk factors. Using the classical Cornish-Fisher expansion, Helmut Lutz and Carsten Wehn derive analytical formulas for risk contributions...
Option strategies based on semiparametric implied volatility surface...
Published online only
This paper investigates whether a more sophisticated technique that is able to accurately forecast the future movements of the implied volatility surface can help to improve the performance of basic option strategies. To this end, we construct a set of...
Constructing the best trading strategy: a new general framework
Published online only
A new general framework for constructing the best trading strategy for a given historical indicator is introduced in this paper. We construct the unique trading strategy with the highest expected return. This optimal strategy may be implemented directly,...
On a multi-timescale statistical feedback model for volatility fluctuations...
Published online only
We study, both analytically and numerically, a multiscale quadratic autoregressive conditional heteroskedasticity (QARCH) model of volatility, which assumes that the volatility is governed by the observed past price changes over different timescales.With...
Perspectives on systemic risk
Published online only
Despite the ongoing efforts of policymakers to stabilize the financial markets, investors throughout the world remain vulnerable to an exceptionally high level of systemic risk. Market volatility is elevated, cross-asset correlations have spiked and there...
Cutting Edge introduction: requiem for a probabilist
Original headline:
The already challenging task of calibrating stochastic volatility models becomes even more complex when rates are random too. But an efficient Monte Carlo approach can be found – by using an esoteric, but neglected, stochastic calculus. Laurie Carver...
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