Cutting Edge
Optimising VAR and terminating Arnie-VAR
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Machine learning for trading
Gordon Ritter applies reinforcement learning to dynamic trading strategies with market impact
Calibrating Heston for credit risk
Marco de Innocentis and Sergei Levendorskiĭ describe a faster and more accurate method for market-implied calibration of the Heston model
The bald truth about collateral haircut modelling
HSBC’s Wujiang Lou says parametric modelling of haircuts has many advantages over historical VAR
Haircutting non-cash collateral
Wujiang Lou develops a parametric haircut model to conduct sensitivity tests and capture market liquidity risk
Using derivatives to forecast oil scenarios
Generating probability-weighted oil price scenarios from traded derivatives prices can help risk managers in the industry
CCP stress testing gets real
Quants propose technique to generate effective, plausible CCP stress-testing scenarios
Extremely (un)likely: a plausibility approach to stress testing
CCP’s risk managers propose a framework for generating extreme but plausible stress scenarios
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
Accounting for initial margin under IFRS 13
Chris Kenyon and Richard Kenyon show why initial margin should be part of the fair value of a derivative
Trading lightly: cross-impact and optimal portfolio execution
A liquidity model for basket of correlated securities is presented
Bounding Bermudans
Thomas Roos derives model-independent bounds for amortising and accreting Bermudan swaptions
The quant factory: not muppets, but not perfect
Universities offering quant master’s programmes must adapt to stay relevant, writes UBS’s Gordon Lee
Model calibration with neural networks
Andres Hernandez presents a neural network approach to speed up model calibration
Stress hedging in portfolio construction
Bilgili, Ferconi and Ulitsky propose a constrained portfolio optimisation approach incorporating stress scenarios
Size-discovery protocols are not on the efficient frontier
Practice improves allocations but more can be done, says Darrell Duffie
Lessons from the Mortician: volatility modulation
Paul Tudor Jones II, Santhanam Nagarajan and Dario Villani show how to use volatility modulation
Model-free valuation of barrier options
Austing and Li provide a continuous barrier options pricing formula that fits the volatility smile
A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
Does initial margin eliminate counterparty risk?
Andersen, Pykhtin and Sokol show the existence of residual exposure after initial margin posting
Managing energy market volumetric risk
Krzysztof Wolyniec presents a volumetric risk management model for energy markets
What to do about Libor?
Darrell Duffie explains why transition from Ibor-based benchmarks is necessary and feasible
Mixing SABR models for negative rates
Antonov, Konikov and Spector use an exact formula for the normal free boundary SABR to construct an arbitrage-free mixed SABR model
Fast and precautious: order controls for trade execution
Algo traders propose a new optimal execution algorithm with both limit and market orders