In this paper, we explore the procyclicality of initial margin requirements based on VaR volatility models.We suggest procyclicality can be reduced using a three-regime model rather than using ad hoc tools.
This paper proposes a new econometric model for the estimation of optimal hedge ratios (HRs): the Kalman filter error-correction model (KF–ECM).
In this paper the authors formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets.
In this paper, we analyze the consequences of shareholders’ limited liability for the risk- and value-based investment decisions made by a nonlife insurer under solvency constraints.
This paper develops two local mesh-free methods for designing stencil weights and spatial discretization, respectively, for parabolic partial differential equations (PDEs) of convection–diffusion–reaction type.
In this work, we present a new Monte Carlo algorithm that is able to calculate the pathwise sensitivities for discontinuous payoff functions.
We present an approach for pricing European call options in the presence of proportional transaction costs, when the stock price follows a general exponential Lévy process.
This paper proposes a new, flexible framework using Monte Carlo methods to price Parisian options not only with constant boundaries but also with general curved boundaries.
This work looks at a wide range of models to test the degree to which CECL is procyclical for different types of model.
In this paper, we investigate the alpha factor’s sensitivity to key model parameters under stylized portfolio assumptions in order to better understand its complex characteristics. Our analysis is based on the numerical simulation of alpha sensitivities…
This paper provides an alternative way to introduce the stylized facts on electricity futures.
International Financial Reporting Standard 9 expected credit loss estimation: advanced models for estimating portfolio loss and weighting scenario losses
In this paper, the authors propose a model to estimate the expected portfolio losses brought about by recession risk and a quantitative approach to determine the scenario weights. The model and approach are validated by an empirical example, where they…
This paper proposes a novel method for estimating future operational risk capital: incremental value-at-risk (IVaR)
This paper determines if enough data is available for forecasting or stress testing, a better measure of data length is required.
This paper finds that a zero-investment strategy that goes long (short) in the highest (lowest) quintiles of firm-specific risk earns overall positive excess returns across twenty-one emerging markets.
This paper shows analytically that a volatility-targeted allocation methodology improves the risk-adjusted performance of portfolios under a broad set of assumptions regarding the serial correlation of returns and the dependence of the expected Sharpe…
In this paper, the authors show the connection between equities and foreign exchange markets via this window, they leverage this connection using an algorithmic trading strategy and rank various statistical techniques used to make predictions for trading…
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
Using a simple model, this paper derives two results that provide guiding principles for hedging by, and capital regulation of, financial institutions.
This paper uses a twenty-year data set of all publicly listed US firms from 1995 to 2014 to create a unique measure of both the extent and the scope of firm-level multinationality.
This paper provides insight into how the collected data pursuant to the EMIR can be used to shed light on the complex network of interrelations underlying the financial markets.