Technical papers/Risk Management
Some quants discarded the continuous time model when it got in the way of arbitrage-free pricing – but others see a chance to fix the traditional ideal. Laurie Carver introduces this month’s technical...
This paper focuses on the pricing of variance and volatility swaps in the energy market. An explicit variance swap formula and a closed-form volatility swap formula (using the Brockhaus-Long approximation)...
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.
More Technical papers/Risk Management articles
We quantify the optionality in US natural gas storage leases under a model of optimal storage management. The model utilizes a two-factor tree in which both factors mean-revert; it calibrates to current market conditions, accounts for volume constraints...
We develop a flexible multifactor stochastic model with three diffusive and three spike regimes, for daily spot and forward electricity. The model captures various stylized features of power prices, including mean reversion and seasonal patterns and short-lived...
This paper looks at competition and innovation in retail payments and their relation to payment pricing and payment efficiency. Payment markets are complex and economic theory cannot always guide us. There is not much consensus on what constitutes an...
This paper studies the US crude oil (CO) market and its structural changes. The theory of exhaustible resources and the fundamentals of crude oil supply and demand form the theoretic foundation of our research. The role of a set of recent drivers of oil...
This paper addresses the question of how free riding in large-value payment systems should be properly measured. Based on the valuable proposal by Denbee, Garratt and Zimmermann, various measures of free riding in large-value payment systems are investigated....
We present an application of network theory to the Dutch payment system with specific attention to systemic stability. The network nodes comprise banks active in the Netherlands where links between the nodes are established by payments. Traditional measures...
In the aftermath of the failure of Lehman Brothers, regulators, especially in the United States and Europe, are focusing on reducing the risks in the overall ove-rthe-counter (OTC) derivatives market. We provide an overview of the OTC derivatives market...
Technology can provide a competitive advantage in banking. How it is applied by Tier 1 and Tier 2 institutions, to the benefit for their risk management systems, is discussed.
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