Risk magazine/Technical paper
Extremely (un)likely: a plausibility approach to stress testing
CCP’s risk managers propose a framework for generating extreme but plausible stress scenarios
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
Accounting for initial margin under IFRS 13
Chris Kenyon and Richard Kenyon show why initial margin should be part of the fair value of a derivative
Trading lightly: cross-impact and optimal portfolio execution
A liquidity model for basket of correlated securities is presented
Bounding Bermudans
Thomas Roos derives model-independent bounds for amortising and accreting Bermudan swaptions
Model calibration with neural networks
Andres Hernandez presents a neural network approach to speed up model calibration
Stress hedging in portfolio construction
Bilgili, Ferconi and Ulitsky propose a constrained portfolio optimisation approach incorporating stress scenarios
Model-free valuation of barrier options
Austing and Li provide a continuous barrier options pricing formula that fits the volatility smile
A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
Does initial margin eliminate counterparty risk?
Andersen, Pykhtin and Sokol show the existence of residual exposure after initial margin posting
Mixing SABR models for negative rates
Antonov, Konikov and Spector use an exact formula for the normal free boundary SABR to construct an arbitrage-free mixed SABR model
Fast and precautious: order controls for trade execution
Algo traders propose a new optimal execution algorithm with both limit and market orders
Optimal trading with linear and (small) non-linear costs
Bouchaud et al find the optimal trading strategy for a family of predictive signals in the presence of transaction costs
Derivatives funding, netting and accounting
Christoph Burgard and Mats Kjaer expand their semi-replication framework to multiple counterparties
XVA at the exercise boundary
Andrew Green and Chris Kenyon show how the decision to exercise an option is influenced by XVAs
Crunching mortality and life insurance portfolios with extended CreditRisk+
Jonas Hirz, Uwe Schmock and Pavel Shevchenko present a summary of actuarial applications of the extended CreditRisk+ model
Systemic risks in CCP networks
Barker, Dickinson, Lipton and Virmani propose a credit and liquidity risk model for CCPs
Beat equal weighting: a strategy for portfolio optimisation
Yong (Jimmy) Jin and Lie Wang propose an estimation method for optimal portfolio weights under parameter uncertainty
Elasticity theory of structuring
Andrei Soklakov presents a product design theory that incorporates Bayesian information processing and risk aversion
‘Hot-start’ initialisation of the Heston model
Serguei Mechkov initialises Heston model’s parameters using probability distributions
Gap risk KVA and repo pricing
Wujiang Lou introduces a reserve capital approach to the hedging error in the BSM model
Adjusting VAR to correct sample volatility bias
David Frank proposes an adjustment to sample variance for the computation of value-at-risk
Flylets and invariant risk metrics
Kharen Musaelian, Santhanam Nagarajan and Dario Villani show how to build robust risk metrics for bond returns
Organising the allocation
Yadong Li, Marco Naldi, Jeffrey Nisen and Yixi Shi propose a new capital allocation method