Technical paper/Capital requirements
The impact of the Fundamental Review of the Trading Book: evaluation on a stylized portfolio
The authors investigate banks' market risk capital requirements under the internal models approach through the lens of the Basel Fundamental Review of the Trading Book, using data from the period 2007-19.
Regulatory arbitrage in the use of insurance in the new standardized approach for operational risk capital
Basel’s new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will likely have an incentive to insure recurring losses. Such insurance can meaningfully reduce…
A Libor market model including credit risk under the real-world measure
The authors present a methodology to generate future scenarios of interest rates for different credit ratings under a real-world probability measure.
Basel risk weight functions and forward-looking expected credit losses
The authors establish that the combination of lifetime ECL and the Basel Capital Adequacy Framework, which relies on a one-year horizon, results in capital overestimation. Alongside this finding, and in order to alleviate the problem, they propose two…
In the balance redux
Mats Kjaer developes a dynamic balance-sheet pricing model for valuation adjustments
Reduced-form capital optimisation
A linear approximation to an allocation technique provides a solution for banks’ capital managment
Capital allocation under the Fundamental Review of the Trading Book
Quants propose an allocation method for internal model capital charges
Systemic risk in the financial system: capital shortfalls under Brexit, the US elections and the Italian referendum
This paper uses SRISK to quantify the estimated capital shortfalls of financial institutions under three relevant stress events that occurred in 2016: Brexit, the Trump election and the Italian referendum.
Is operational risk regulation forward looking and sensitive to current risks?
This paper evaluates the operational risk capital requirements of large US banks to determine whether they are forward looking, sensitive to banks’ current exposures and designed to allow for risk mitigation.
Forward-looking and incentive-compatible operational risk capital framework
This paper proposes an alternative framework for setting banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism.
Central counterparty resolution: an unresolved problem
This paper describes the current policy for recovery and resolution of CCPs and assesses the tool kit for resolution of them.
Addressing probationary period within a competing risks survival model for retail mortgage loss given default
This paper presents a novel approach to modeling retail mortgage LGD estimation.
Hidden Markov regimes in operational loss data: application to the recent financial crisis
The authors propose a method to consider business cycles in the computation of capital for operational risk.
The death of one thousand flowers or the AMA reborn?
The author of this paper explores the reasons for the pending demise of the advanced measurement approach (AMA) to operational risk.
A maximum entropy approach to the loss data aggregation problem
This paper examines and compares alternative ways of solving the problem of determining the density of aggregate losses.
Modeling operational risk capital: the inconvenient truth
This paper shows that it is an "inconvenient truth" that the largest losses by banks are not firm specific.
KVA: capital valuation adjustment by replication
KVA are introduced to take into account the effect of capital on funding
Cutting Edge introduction: pricing the CVA doom loop
Pricing the CVA doom loop