Cutting Edge
Identification and capitalisation of non-modellable risk factors
Adolfo Montoro, Tim Becker and Lars Popken propose techniques for systematically capturing and categorising non-modellable risk factors and risk-adequate aggregation
FVA: off the mark
With adjustments to increase, Darrell Duffie says dealers should improve weak valuation practices
Crunching mortality and life insurance portfolios with extended CreditRisk+
Jonas Hirz, Uwe Schmock and Pavel Shevchenko present a summary of actuarial applications of the extended CreditRisk+ model
Systemic risks in CCP networks
Barker, Dickinson, Lipton and Virmani propose a credit and liquidity risk model for CCPs
Why the leverage ratio distorts market-making
Darrell Duffie argues the rule hurts market efficiency for very safe assets
Beat equal weighting: a strategy for portfolio optimisation
Yong (Jimmy) Jin and Lie Wang propose an estimation method for optimal portfolio weights under parameter uncertainty
Elasticity theory of structuring
Andrei Soklakov presents a product design theory that incorporates Bayesian information processing and risk aversion
Degree of influence, 2016: capital matters
Capital, liquidity and XVAs are still the core of quantitative research in banking
Can quants defuse the pension time bomb?
Alex Lipton argues new quantitative methods are needed to solve the looming pension crisis
‘Hot-start’ initialisation of the Heston model
Serguei Mechkov initialises Heston model’s parameters using probability distributions
Gap risk KVA and repo pricing
Wujiang Lou introduces a reserve capital approach to the hedging error in the BSM model
Commodity volatility, skew and inverse leverage effect
Krzysztof Wolyniec on leverage effects and volatility in commodity markets
Adjusting VAR to correct sample volatility bias
David Frank proposes an adjustment to sample variance for the computation of value-at-risk
The decline of the cash empire
Alex Lipton: the last line of defence between us and punitive negative rates is paper currency
Flylets and invariant risk metrics
Kharen Musaelian, Santhanam Nagarajan and Dario Villani show how to build robust risk metrics for bond returns
Organising the allocation
Yadong Li, Marco Naldi, Jeffrey Nisen and Yixi Shi propose a new capital allocation method
A profit and loss attribution framework for physical and financial energy portfolios
A P&L attribution framework can improve the information available to energy traders
Blockchain: a solution looking for a problem
While new financial technologies show considerable promise, many proposed applications are either naive or miss the mark outright
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