Risk magazine/Technical paper
Stable linear-time optimisation in arbitrage pricing theory models
Gordon Ritter proposes a stable mean-variance optimisation for APT models
Interest rate models enhanced with local volatility
Lingling Cao and Pierre Henry-Labordère implement Dupire's local volatility in interest rate models
Operational risk modelled analytically II: classification invariance
In a simple model, Vivien Brunel establishes the properties of an operational risk model under the requirement of classification invariance
Risk optimisation: the noise is the signal
Benedict Burnett, Simon O’Callaghan and Tom Hulme introduce a new method of optimising the accuracy and time taken to calculate risk for an XVA trading book. They show how to make a dynamic choice of the number of paths and time discretisation focusing…
Deriving derivatives
Andrei Soklakov shows how to incorporate traditional investment ideas and clients’ views into structured product design
MVA transfer pricing
Wujiang Lou extends liability-side pricing theory to initial margin
Deconstructing correlation
Peter Austing introduces an analytic or semi-analytic valuation of basket options
Risk management for whales
Rama Cont and Lakshithe Wagalath introduce a liquidation-adjusted VAR
Loan classification under IFRS 9
Vivien Brunel proposes a method to classify non-defaulted loans in accordance with IFRS 9
Expected shortfall and VAR: cracking the marginal allocations
A new method to estimate marginal VAR and marginal ES is presented
Capital and funding
Quants propose KVA and FVA accounting framework based on Solvency II regulation
Cleaning correlation matrices
Bun, Bouchaud and Potters present a technique that allow cleaning in-sample noise from correlation matrixes
Liability-side pricing of swaps
Wujiang Lou presents a framework to compute recursive CVA and FVA via Monte Carlo simulation
Cross-dependent volatility
Julien Guyon introduces cross-dependent volatility models and calibrate them to market smiles
Accounting for KVA under IFRS 13
An accounting treatment for the economic effect of KVA in accordance with IFRS13
From FVA to KVA: including cost of capital in derivatives pricing
Youssef Elouerkhaoui presents a general derivatives pricing framework including cost of capital
Johnson-Omega performance measure
Alexander Passow presents a portfolio performance measure that combines the omega measure with Johnson distributions
The funding invariance principle
Youssef Elouerkhaoui shows how the choice of discounting rate is irrelevant for pricing
Risk management for return enhancement
Lundin and Satchell present a non-linear asymmetric dependence method between two assets
Non-parametric local volatility formula for interest rate swaptions
Gatarek, Jabłecki and Qu introduce a Dupire-like formula for swaptions
Hedging error measurement for imperfect strategies
Jack Baczynski, Jonathan da Silva and Rosalino Junior present an index for measuring hedging errors
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
Diversification benefit of operational risk
Torresetti and Le Pera explore the relevance of the diversification benefit from a theoretical and practical viewpoint
Correlation skew via stochastic correlation and jumps
Valer Zetocha introduces a correlation model based on the Jacobi process with jumps