Fat tails
Fat tails via utility-based entropy
Fat tails via utility-based entropy
Cutting Edge introduction: Tales of tails
Tales of tails
Portfolio theory vindicated by crisis, says Markowitz
Nobel prize-winner defends his work on portfolio theory, which critics claim has been discredited by the crisis
Risk 25: Cutting edge classics
Don’t say we didn’t warn you
Market reaction to price changes and fat-tailed returns
Market reaction to price changes and fat-tailed returns
Bank models are built on foundations of sand
Foundations of sand
Marking systemic portfolio risk with the Merton model
Marking systemic portfolio risk with the Merton model
Equity markets in constant state of extreme event expectation, says expert
Models of US and UK equity markets show players expect fresh outbreak of crisis
Capturing fat tails
Financial institutions are more aware of the risks posed by high-impact events since the crisis, but the question is how to encapsulate these in models. Zari Rachev, Boryana Racheva-Iotova and Stoyan Stoyanov discuss three approaches for capturing fat…
Putting the smile back on the face of derivatives
Cross-asset quadratic Gaussian models have been limited in the scale of their implementation by the difficulty in ensuring the correct drift conditions to omit arbitrage. Here, Paul McCloud shows how to exploit the symmetries of the functional form to…
Rethinking (operational) risk management
For operational risk managers to really make a difference to their firms' fortunes, they must be willing to get their hands dirty and face facts, no matter how scary the facts may be, says Sergio Scandizzo, in the second of a two-part series
Operational risk - Operational VAR: a closed-form approximation
Klaus Bocker and Claudia Kluppelberg investigate a simple loss-distribution model for operational risk. They show that, when loss data is heavy-tailed (which in practice it is), a simple closed-form approximation for operational value-at-risk (VAR) can…
Operational VAR: a closed-form approximation
Klaus Böcker and Claudia Klüppelberg investigate a simple loss distribution model for operational risk. They show that, when loss data is heavy-tailed (which in practice it is), a simple closed-form approximation for operational VAR can be obtained. They…
Tailor-made for tails
Hedging strategies
VaR-x: Fat tails in financial risk management
To ensure a competent regulatory framework with respect to value-at-risk (VaR) for establishing a bank's capital adequacy requirements, as promoted by the Basel Committee on Banking Supervision, the parametric approach for estimating VaR needs to…