Original research
Vibrato and automatic differentiation for high-order derivatives and sensitivities of financial options
This paper deals with the computation of second-order or higher Greeks of financial securities. It combines two methods, vibrato and automatic differentiation (AD), and compares these with other methods.
Polynomial upper and lower bounds for financial derivative price functions under regime-switching
In this paper, the authors present a new approach to bounding financial derivative prices in regime-switching market models from both above and below.
Procyclicality of capital and portfolio segmentation in the advanced internal ratings-based framework: an application to mortgage portfolios
This paper investigates the procyclicality of capital in the advanced internal ratings based (A-IRB) Basel approach for retail portfolios, and identifies the fundamental assumptions required for stable A-IRB risk weights over the economic cycle.
Analytical expressions of risk quantities for composite models
In this paper, the authors obtain analytic expressions of different actuarial and statistical quantities for a general class of composite models derived from the McDonald’s family of probability distributions.
Structural changes in the interbank market across the financial crisis from multiple core–periphery analysis
In this work, the authors employ the KM–ER algorithm to characterize the internal organization of eMID.
Networks of common asset holdings: aggregation and measures of vulnerability
This paper quantifies the interrelations induced among financial institutions by common asset holdings.
Covering the world: global evidence on covered calls
Typical covered call strategies may be decomposed, using a risk and performance attribution methodology, into three components: equity exposure, short volatility exposure and equity timing. This paper applies that attribution methodology to covered calls…
A latent trawl process model for extreme values
This paper presents a new model for characterizing temporal dependence in exceedances above a given threshold.
Managing adverse temperature conditions through hybrid financial instruments
This paper proposes temperature-based risk management using hybrid financial instruments built on weather derivatives.
Forward-looking and incentive-compatible operational risk capital framework
This paper proposes an alternative framework for setting banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism.
Modeling operational risk depending on covariates: an empirical investigation
In this paper, the authors apply a dynamic extreme value theory (EVT) model based on a nonhomogeneous Poisson process incorporating covariates to estimate frequency, severity and risk measures for operational risk.
An empirical study on credit risk management: the case of nonbanking financial companies
The aim of this paper is to predict future default behaviors of nonbank financial company customers using credit scores.
Why are investors’ mutual fund market allocations far from optimal?
In this paper, the authors analyze why the optimal portfolio of funds that investors may take under complete information and the actual structure of the mutual fund market differ.
Benefits and risks of central clearing in the repurchase agreement market
In this paper, the authors quantify the potential direct economic benefits to market participants and increased risks to CCPs of moving bilateral repo transactions between US dealers and their nondealer clients to CCPs.
Empirical assessments of the Reserve Bank of India’s policy measures on payment and settlement systems in India
This paper empirically evaluates the effects of policy measures used by the Reserve Bank of India (RBI) on interbank payment and settlement systems in that country.
Bermudan swaption model risk analysis: a local volatility approach
This paper seeks to contribute a simple and (almost) model-free way of assessing the economic value of the Bermudan exercise right derived from a “minimal” local volatility enhanced interest rate model.
Optimal allocation of model risk appetite and validation threshold in the Solvency II framework
In this paper, the authors derive an analytical solution for sub-SCR VTs starting with a model risk appetite (MRA) that defines acceptable errors for an insurer’s total SCR.
A new model for bank loan loss given default by leveraging time to recovery
In this paper, the author estimates a two-equation system: one for LGD that incorporates time to recovery as one of the model explanatory variables, and the other for time to recovery using survival models that address data censoring.
On the spatial hedging effectiveness of German wind power futures for wind power generators
In this paper, the authors consider wind power utilization in thirty-one different locations in Germany.
Computational analysis of structural properties of economic and financial networks
This paper surveys the use of networks and network-based methods to study economy- related questions.
Optimal hedge ratios based on Markov-switching dynamic copula models
In this paper, the authors combine MS dynamic copulas with the skewed t SV model to study the optimal hedge ratios of portfolios.
A review of the fundamentals of the Fundamental Review of the Trading Book II: asymmetries, anomalies, and simple remedies
This paper highlights some anomalies and asymmetries in the new market risk paradigm of the Fundamental Review of the Trading Book (FRTB) framework.
Equity market impact modeling: an empirical analysis for the Chinese market
This paper discusses and derives the extremum of the expectation of permanent impact and realized impact by constructing several special trading trajectories in the Chinese market.
Default contagion among credit modalities: evidence from Brazilian data
The aim of this paper is to assess the impact of defaulting on one personal credit modality on future defaults on other modalities. Using Brazilian microdata, the authors run a logistic regression to estimate the probability of default on a given credit…