Fractional differencing: (in)stability of spectral structure and risk measures of financial networks
This paper studies how correcting for the order of differencing leads to altered filtering and risk computation for inferred networks.
To capture the commonality in idiosyncratic volatility, the authors propose a novel multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model called dynamic factor correlation (DFC).
New diversification measure enables construction of equally diversified portfolios
In this paper, the eigendecomposition of a Toeplitz matrix populated by an exponential function in order to model empirical correlations of US equity returns is investigated.
ARR aims to anticipate volatility patterns to provide signals for risk management and trading
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
In this paper, the authors establish generalized autoregressive conditional heteroscedasticity–dynamic conditional correlation (GARCH–DCC) and constant conditional correlation (CCC) copula model frameworks to study time-varying correlation among credit…
This paper considers a definition of through-the-cycle as independent from an economic state that can result in a time-varying TTC probability of default.
This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in reality it is not.
Parameter estimation, bias correction and uncertainty quantification in the Vasicek credit portfolio model
This paper is devoted to the parameterization of correlations in the Vasicek credit portfolio model. First, the authors analytically approximate standard errors for value-at-risk and expected shortfall based on the standard errors of intra-cohort…
This paper develops a parsimonious model for evaluating portfolio credit derivatives dependent on aggregate loss.
In this paper, the authors develop a new local correlation model that uses a generic function 'g' to describe the correlation between all asset–asset pairs for a basket of underlyings.
The potential future loss is proposed as a replacement for PFE
This paper reviews the ways of measuring the performance of LGD models that have been previously used in the literature and also suggests some new measures.
A correlation structure is an important element in pricing products such as correlation swaps
In this paper, the authors outline a simulation-based methodology for the generation of stressed transition probability matrixes under the structural credit risk framework.
The authors present a methodological framework for quantifying interdependencies in the global market and for evaluating risk levels in the worldwide financial network.
This paper develops a connection between the Hull–White parametric approach and the PCL correlation approach for CVA calculation.
Stochastic loss given default and exposure at default in a structural model of portfolio credit risk
The authors develop a factor-type latent variable model for portfolio credit risk that accounts for stochastically dependent probability of default (PD), loss given default (LGD) and exposure at default (EAD) at both the systematic and borrower specific…
The aim of this paper is to assess the effects of the reputation of the members of a group on any single member of the group using the concepts of social influence and convergence in belief.
This paper studies centrality (interconnectedness risk) measures and their added value in an active portfolio optimization framework.
This paper mathematically formalizes the concept of a temporal path-dependent risk measure in order to capture the risk associated with the temporal dimension of a stochastic process.
Operational risk and the Solvency II capital aggregation formula: implications of the hidden correlation assumptions
The authors of this paper analyze the Solvency II standard formula for capital risk aggregation in relation to the treatment of operational risk capital.