Technical paper/Risk management/Risk management
Op risk modelling for extremes
Part 2: Statistical methods In this second of two articles, Rodney Coleman, of Imperial College London, continues his demonstration of the uncertainty in measuring operational risk from small samples of loss data.
Coarse-grained CDOs
While analytical models of credit portfolio risk using conditional independence have been one of the most promising areas of recent research, they often involve granularity assumptions that are violated in CDO reference portfolios. Here, Michael Pykhtin…
Loan portfolio value
Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…
Unsystematic credit risk
Although Basel has shifted its treatment of unsystematic credit risk from the first, capital rules pillar (where it was called the 'granularity adjustment') to the second, supervisory pillar of the forthcoming Accord, this issue is of great practical…
Unsystematic credit risk
Although Basel has shifted its treatment of unsystematic credit risk from the first, capital rules pillar (where it was called the ‘granularity adjustment’) to the second, supervisory pillar of the forthcoming Accord, this issue is of great practical…
Minimising extremes
Portfolio diversification often breaks down in stressed market environments, but the co-movement of asset prices in a tail risk regime may be modelled using a coefficient of tail dependence. Here, Yannick Malevergne and Didier Sornette show how such…
Portfolio allocation to corporate bonds with correlated defaults
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility ofcorrelated defaults. Under fairly general assumptions for the distribution of thetotal net assets of a set…
Fallacies about the effects of market risk management systems
This paper takes another look at allegations that risk management systems have contributed to increased volatility in financial markets, with the particular example of the summer of 1998. The paper also provides new evidence on the potential effect of…
Avoiding pro-cyclicality
David Cosandey and Urs Wolf argue that, for small to medium-sized enterprises, Basel II is pro-cyclical because of a double-counting of the risks. They present two main directions for possible capital rules that would circumvent the pro-cyclicality…
A bootstrap back-test
Back-testing
Copula vulnerability
Counterparty credit risk
Credit risk measurement of securitisation structures
Peter-Paul Hoogbruin, Harmenjan Sijtsma and Viktor Tchistiakov of ING Group Credit Risk Management present a framework for valuing securitisation tranches from an investor’s perspective.
VAR you can rely on
Analytical and simulation-based methods often appear as rivals, but many real world problems are best served by judicious combinations of both approaches. In a first of a pair of computationally themed papers, Rabi De and Tanya Tamarchenko present a…