Technical paper
Commodity risk hedging through risk sharing: reengineering Islamic forwards
This paper studies the possibility of using Islamic forwards, which are commonly known as salam contracts, to hedge commodity risk, while respecting the principle of risk sharing.
Advanced risk profile analysis of Islamic equity investment: evidence from the American, Asian and European markets
This paper investigates three Islamic equity indexes, classified by economic hubs (Dow Jones Europe, Asia/Pacific and United States), against their conventional peers from 2003 to 2009.
Applying the Cornish–Fisher expansion to value-at-risk estimation in Islamic banking
This study deliberates upon a proposed delta–gamma sensitivity analysis–extreme value theory (DGSA–EVT) model that focuses on the assessment of risk exposures represented by the value of value-at-risk (VaR) in three incomegenerating channels: one in…
Recursive profit-and-loss sharing
This paper develops a new financial product that allows the profit-and-loss sharing (PLS) principle to be enforced recursively in practice.
The management of refinancing risk in Islamic banks
This paper investigates the risk engendered by maturity mismatches.
Time series models for credit default swap premiums
This paper analyzes the theoretical properties and statistical behavior of credit default swap (CDS) premiums over time.
Hermite approximations in credit portfolio modeling with probability of default–loss given default correlation
The authors present an analytic framework for credit portfolio modeling using Hermite expansions.
A robust set-valued scenario approach for handling modeling risk in portfolio optimization
By introducing the set-valued scenario, this paper proposes a unified robust portfolio selection approach under downside risk measures.
Cutting Edge introduction: Law-abiding FVA
HSBC quant develops an FVA model that preserves the law of one price
Efficient XVA management: pricing, hedging and allocation
Kenyon and Green show how certain technical elements simplify XVA management
A simple approximation for the no-arbitrage drifts in Libor market model–SABR-family interest-rate models
This paper presents a simple approximation for the noarbitrage drifts that appear in Libor market model SABR-family term structure models.
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
Cutting Edge: Co-simulation of risk factors in power markets
A simple but realistic model to co-simulate the time series of temperature, electricity load and prices is proposed
Cutting edge introduction: Adjoints - maintaining the legacy
Quants at UBS show how to speed up the calculation of sensitivities without tearing up legacy code
American options: time-critical pricing
Time constraints can be binding for ‘heavy’ Monte Carlo calculations of risk analytics – value-at-risk, potential future exposure, credit valuation adjustment – in intraday risk monitoring, so fast approximations are sometimes preferred. Vladislav…
Greeks with continuous adjoints: fast to code, fast to run
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs
Indexing multi-asset solutions
This paper explores the potential role of multi-asset solutions in the indexing landscape as well as challenges in constructing multi-asset indexes
Commodity value-at-risk modeling: comparing RiskMetrics, historic simulation and quantile regression
The authors of this paper investigate the risk modeling of commodities. They note that return distributions differ widely across different commodities, both in terms of tail fatness and skewness.
Exploring shipping inefficiencies in global liquified natural gas trade patterns
The authors examine GPS-communicated data on liquefied natural gas (LNG) tanker movements between January 2011 and August 2012 to determine the possible drivers of apparently inefficient shipping routes from producing to consuming countries.
A combined regime-switching and Black–Litterman model for optimal asset allocation
The authors of this paper aim to test empirically the performance of several optimization algorithms that exist in the literature and then compare them, in both a single-regime market and a two-regime market.
Cave quid optes: waterfalls and central counterparty capital
This paper explores the lines of defense of a central counterparty. The author examines the lines of defence ("the waterfall") of a central counterparty (CCP) inter alia in the context of the requirements set by the Principles for Financial Market…
Communities and driver nodes in the TARGET2 payment system
This paper first describes T2 by means of classic network measures. Then, it applies novel methods developed in network theory to uncover two additional features of T2: driver nodes and communities.
Stress testing and modeling of rating migration under the Vasicek model framework: empirical approaches and technical implementation
This paper is concerned with stress testing the Vasicek model by extending the correlation structure for nondefault ratings. Two models are proposed.
Are world natural gas markets moving toward integration? Evidence from the Henry Hub and National Balancing Point forward curves
The authors of this paper investigate whether the US and UK gas markets are moving toward integration. As well as looking at the cointegration of the Henry Hub and National Balancing Point indexes, the authors also introduce the novel concept of…