Cutting Edge
Podcast: Andrew Dickinson on CCPs’ defence mechanisms
Trades’ size limits, membership rules and more transparency key to avoid another CCP default
Small, speculative clearing members – are they worth the risk?
CCPs need new tools to scrutinise their members, for everyone’s good health
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
The homotopy analysis method for derivatives pricing under wrong-way risk
Derivatives pricing is approximated with a computationally efficient homotopy-based application that accounts for WWR
Degree of influence: Regulatory policies drive quantitative research
Counterparty risk and market risk hold centre stage, data science moves up, quantum computing debuts
Hedging rate exotics, Bergomi-style
New paper by Nomura quant applies volatility model used in equities to exotic rate hedging
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
ADOL: Markovian approximation of a rough lognormal model
A variation of the rough volatility model is introduced by plugging in a different stochastic process
Stay ahead of the fixing lag
The price of fund-linked derivatives depends on the fixing lag of the underlying funds
Quants bring ‘triptych’ of variables to risk measurement
Risk and portfolio managers at La Francaise and LFIS are squeezing more information out of stress tests
A triptych approach for reverse stress testing of complex portfolios
Pascal Traccucci et al present an extended reverse stress test triptych approach with three variables
Podcast: Mats Kjaer on how trades affect the balance sheet
Bloomberg quant has developed a balance-sheet model for XVA pricing
In the balance redux
Mats Kjaer developes a dynamic balance-sheet pricing model for valuation adjustments
Game theory plays well for capital management
Barclays quants use Shapley method to optimise capital allocation
Forecasting value-at-risk
Alvin Stroyny and Tim Wilding build a dynamic risk framework for multi-asset global portfolios
Reduced-form capital optimisation
A linear approximation to an allocation technique provides a solution for banks’ capital managment
Backtesting expected shortfall: mission accomplished?
A rigorous backtest for ES cannot exist, but a good approximation might do the job
Levelling the playing field of the FRTB’s forex rules
Hany Farag argues that changing the base currency may address FRTB forex asymmetry
The minimally biased backtest for ES
Acerbi and Szekely present a backtest for expected shortfall
Fishing for collateral with neural nets
SocGen quant uses deep learning technique to optimise collateral substitution
Optimal posting of collateral with recurrent neural networks
Pierre Henry-Labordère applies neural networks to a control problem approach for managing collateral
No forward-looking rates? No problem
A commonly used quant model could be the answer to the replacement of forward-looking Libor
Podcast: Gregory and Chung on wrong-way risk modelling
Quants discuss a better way to model wrong-way risk