Technical papers/Risk Management
Cutting Edge introduction: Continuity error
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...
The risk of exposure and counterparty default probability both increasing – so-called wrong-way risk – is usually understood in terms of the correlation between the two variables. But this approach...
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)...
Using market and credit risk analytics to strengthen performance
How are banks improving their risk management techniques?
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
Quantifying natural gas storage optionality: a two-factor tree model
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...
Practical stochastic modeling of electricity prices
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...
Pricing, competition and innovation in retail payment systems: a brief...
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...
The US oil spot market: a deterministic chaotic process or a stochastic...
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...
Measuring free riding in large-value payment systems: the case of TARGET2...
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....
Network dynamics of TOP payments
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...
Making the over-the-counter derivatives markets safe: a fresh look
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...
How can investment banks use grid technology?
Learn how technology is enhancing risk management
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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Using market and credit risk analytics to strengthen performance
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How financial services need to consider their IT infrastructure
The global credit crisis exposed the weaknesses inherent in the risk management and IT infrastructures employed by banks.
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