Cutting Edge
P&L attribution for energy portfolios with non-linear exposures
Carlos Blanco and Alessandro Mauro explain how non-linear P&L attribution tools can improve a company’s business intelligence capabilities
The covered interest parity conundrum
Darrell Duffie explains why it’s difficult to arbitrage direct and swap-implied funding rates
Optimal trading with linear and (small) non-linear costs
Bouchaud et al find the optimal trading strategy for a family of predictive signals in the presence of transaction costs
Derivatives funding, netting and accounting
Christoph Burgard and Mats Kjaer expand their semi-replication framework to multiple counterparties
Duffie: CCPs should prep to quash Sifi swap termination stays
Clearing houses need criteria for overriding stays on swap terminations, writes Darrell Duffie
XVA at the exercise boundary
Andrew Green and Chris Kenyon show how the decision to exercise an option is influenced by XVAs
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