Alexey Botvinnik and Vladimir Ostrovski propose a validation method for interest rate models
Cedric Fetiveau and Chenye Jia propose a method to measure longevity risk
Hamza Bahaji, Stephanie Ridon and Emmanuel Bourdeix propose a tracking error driven allocation approach applicable to a broad equity universe
The case for targeting core rather than headline inflation for long-term hedgers
A universal law for optimally dealing with proportional transaction costs
Expectiles’ risk contributions are essentially the same as those of expected shortfall
Portfolio construction and systematic trading with factor entropy pooling
When collateral can be posted in multiple currencies, pricing even the simplest derivatives involves optionality, which is often tackled numerically. But by conditioning on a risk factor to make variables independent, this can be simplified. Alexandre...
A new approach to incorporating loss given default into models
Stochastic modelling of reinsurance credit risk
Credit risk factor models tend to have a narrow focus on the Gaussian case, use copula functions that don’t work well with the martingale methods used in pricing, and can introduce arbitrage. Dariusz Gatarek and Juliusz Jablecki show how an increasing...
Derivatives pricing and expected exposure models must be backtested as a basic regulatory requirement. But what does this mean exactly, and how can it be used to reserve against model risk? Lee Jackson introduces a general backtesting framework for market-calibrated...
Filippo Della Casa and Michele Gaffo propose a new framework to run portfolio optimisation for life insurance business, by exporting the replicating portfolio technique from risk management to investment management. In particular, they develop a new...
Wrong-way risk (WWR) behaves differently for exposures to systemically important counterparties because their default has the potential to move financial markets before the close-out. Michael Pykhtin and Alexander Sokol show how the traditional exposure...
Longevity risk under Solvency II
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 is focused more on the centre of the distribution,...
The spread between Libor and overnight index swap rates used to be negligible – until the crisis. Its behaviour since can be explained theoretically and empirically by a model driven by typical lenders’ liquidity and typical borrowers’ credit...
LPI swaps with a smile
Defined benefit pension strategy with stochastic volatility
Robust hedging of withdrawal guarantees
Non-linear momentum strategies
Impact-adjusted valuation and the criticality of leverage
Fat tails via utility-based entropy
Adjoint Greeks made easy