Cutting Edge
Cutting Edge introduction: Creative stress testing
New stress-testing method offers a break from decades-old traditio
Stress testing in non-normal markets via entropy pooling
Ardia and Meucci introduce a parametric entropy pooling approach to portfolios stress testing
Scaling operational loss data and its systemic risk implications
A scaling methodology to include external data in operational risk calculation is introduced
Applied risk management series: Counterparty risk exposure metrics
Carlos Blanco outlines an approach to counterparty risk using potential future exposure
MVA by replication and regression
Burgard and Kjaer method is extended to include margin valuation adjustment
Tail risk premiums versus pure alpha
Tail-risk skewness, rather than volatility, is correlated with risk premiums
Anatomy of a model: Valuation of physical assets
Quant ideas paper dissects layers of valuation models for physical assets
Cutting edge introduction: Funding holes in Black-Scholes
HSBC quant builds funding costs and haircuts into Black-Scholes option pricing formula
Quantized calibration in local volatility
Quantization is applied to price vanilla and barrier options
Funding in option pricing: the Black-Scholes framework extended
Wujiang Lou shows the impact of funding costs on option valuation
Cutting edge introduction: Hidden models for hidden costs
NYU quants use Bayesian techniques to sequence trades, considering trading costs and multiple assets
Two measures for the price of one
Harvey Stein combines risk-neutral and real-world measures into risk methodology
Quant ideas: Building a better LNG forward curve
An overview of effective methods for constructing long-term LNG forward price curves
Multiperiod portfolio selection and Bayesian dynamic models
Kolm and Ritter present a multiperiod, multi-asset selection model with transacion costs, kept computationally tractrable
Warehousing credit risk: pricing, capital and tax
Kenyon and Green model the effects to pricing of credit warehousing, capital and tax
FVA accounting, risk management and collateral trading
Albanese, Andersen and Iabichino present a method for accounting and risk managing FVAs
Cutting edge: Kriging smooth energy futures curves
Applying kriging to extract smooth curves from energy futures prices
Pricing and hedging variance swaps on a swap rate
A pricing tool for fixed-income volatility products is introduced
Backward induction for future values
A new framework for derivatives pricing with valuation adjustments
Robust valuation and hedging of tolling agreements and physical assets
Flexible, martingale duality-based method provides reliable valuation
KVA: capital valuation adjustment by replication
KVA are introduced to take into account the effect of capital on funding
Back-testing expected shortfall
Three easy-to-implement methods for back-testing expected shortfall
Commodity leveraged ETFs: Tracking errors, volatility decay and trading strategies
Tracking performance of ETFs is examined, with a focus on volatility decay
Quant ideas: Liquidity in commodity risk management
Liquidity plays a vastly underappreciated role in commodity markets