Cutting Edge
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
Simulating meaningful uncertainty for complex energy portfolios
The meaningful uncertainty simulation framework can enable energy firms to make better decisions
Macroeconomic theories: not even wrong
Flawed and inconsistent mainstream macroeconomic theories such as efficient market hypothesis are dangerous to society, says Alexander Lipton
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…
Banks must embrace their digital destiny
Alexander Lipton believes the time is right for advanced digital banks to take the industry forward, and quants can lead the charge
Time to gear up for MVA
Banks must be prepared for the looming rise of non-cleared margin requirements
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
On derivatives and quants
Alexander Lipton on how the role of quants is adapting to the new financial environment
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
The UK carbon floor and power plant hedging
How to calculate expected future carbon costs and optimal valuation and hedging decisions, by adjusting Monte Carlo simulations for the UK market
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
How to get maximum value from power plant hedging
Dynamic hedging is becoming more common among plant operators
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