The authors consider risk-neutral valuation of a contingent claim under bilateral counterparty risk using the well-known reduced-form approach.
In this paper, the author builds dynamic networks based on correlation and transfer entropy, using both the log returns and the volatilities of 97 stock market indexes from various parts of the world between 2000 and 2016
In this paper the authors study insolvency cascades in an interbank system, in which banks are permitted to insure their loans with credit default swaps sold by other banks.
By extending the Kelly criterion to a simple probabilistic model with an additional tail risk outcome associated with uncertainty, this paper looks beyond risk and evaluates how uncertainty constrains optimal leverage.
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Lifecycle investing with the profitable dividend yield strategy: simulations and nonparametric analysis
Using simulations, the author shows that life-cycle investing implemented on highly profitable and high dividend yield stocks (the profitable dividend yield strategy) provides a compelling solution to the suboptimality problem by leveraging on the…
This paper considers the problem of enhancing an investment activity by regularly adding an option trade to the portfolio mix and presented results for the single underlier of the S&P 500 index, with the underlying activity being either long the index or…
Gordon Ritter applies reinforcement learning to dynamic trading strategies with market impact
The authors present a methodological framework for quantifying interdependencies in the global market and for evaluating risk levels in the worldwide financial network.
The purpose of this paper is to review the literature on asset price bubbles to study the impact that the existence of bubbles has on standard risk management methodologies.
In this paper, the author presents an easy-to-implement, fast and accurate method for approximating extreme quantiles of compound loss distributions (frequency + severity), which are commonly used in insurance and operational risk capital models.
This paper contributes to the literature on the recovery and resolution of central counterparties (CCPs) by exploring the key components of the recent European legislative proposal on the recovery and resolution of CCPs, its main differences with the…
This paper studies tiering in the case of a national payment system in an emerging economy: the large-value payment system Sistemas de Cuentas de Depósito (CUD, the Spanish acronym for the Deposit Accounts System) operated by the Colombian central bank.
In this paper, the authors answer three questions about the appropriate allocation of nondefault losses at central counterparties.
Estimating “hedge and auction” liquidation costs in central counterparties: a closeout risk approach
This paper shows how the closeout risk framework can be extended to realistically represent and simulate the potential outcomes of “hedge and auction” default management policies currently implemented by several major central counterparties.
This paper discusses key features of fighting behavioral risk in the business line of operations as the central hub for all transactions in a bank.
By comparing the Libor and FX benchmark manipulation scandals, this paper describes how misbehavior emerged independently in both of these markets and the conditions that permitted the misconduct to survive and thrive.
An uncertainty quantification framework for the achievability of backtesting results of trading strategies
In this paper, the authors propose a framework for implementing and backtesting trading strategies.
The goal of this paper is to explain and improve the offshore oil storage trade observed in a contango market using a forward dynamic optimization strategy. The strategy is developed using trades in forward contracts and contrasted with the literature.
This paper introduces a three-factor model that jointly describes both natural gas forward prices and temperature forecast dynamics.
This paper develops a novel methodology for estimating the systematic risk of individual financial transmission rights and detecting the presence of abnormal returns among these financial instruments.
Marco de Innocentis and Sergei Levendorskiĭ describe a faster and more accurate method for market-implied calibration of the Heston model
Wujiang Lou develops a parametric haircut model to conduct sensitivity tests and capture market liquidity risk
This paper develops a connection between the Hull–White parametric approach and the PCL correlation approach for CVA calculation.