Technical paper/Correlation
Credit exposure models backtesting for Basel III
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas and Andreas Nawroth incorporate these guidelines into a…
Operational risk modelled analytically
Regulators require banks to use an internal model to compute a capital charge for operational risk, which is thought to be sensitive to assumptions on dependence between losses that still remain a matter of debate. Vivien Brunel proposes an analytical…
Cutting edge intro: CDOs and the risk of risk aversion
New analysis shows CDOs can withstand high levels of correlation – what they can’t cope with, though, is a sudden change in risk appetite
Cutting Edge introduction: living la vida local
Living la vida local
SABR spreads its wings
SABR spreads its wings
Cutting edge: Correlation functions in the crude oil and natural gas futures markets
Given the importance of the crude oil and natural gas futures markets, the intra-market correlations in these markets play an important role in pricing, hedging and managing the risks of energy portfolios. This paper by Ehud Ronn contributes to the…
An easy-to-hedge covariance swap
An easy-to-hedge covariance swap
Risk 25: Cutting edge classics
Don’t say we didn’t warn you
Stress testing with fully flexible causal inputs
Stress testing with fully flexible causal inputs
Cutting Edge introduction: Hedging dependence
Hedging dependence
Multi-factor forward curve models for energy risk management
Applied risk management series – article two
Repricing the cross smile: an analytic joint density
Repricing the cross smile: an analytic joint density
Perturbed Gaussian copula: introducing the skew effect in co-dependence
Gaussian copula models are often used in the industry when single-asset information is quoted but little is known about their joint relation. These models may arise from correlated stochastic Brownian processes with deterministic volatility and…
Hybrid correlation matrices
Hybrid correlation matrices
Perturbed Gaussian copula: introducing the skew effect in co-dependence
Perturbed Gaussian copula: introducing the skew effect in co-dependence
Cutting edge introduction
A popular copula
Cutting edge introduction
Be discrete
Capturing credit correlation between counterparty and underlying
Capturing credit correlation between counterparty and underlying
Correlations in asynchronous markets
Correlations in asynchronous markets
Breaking correlation breaks
Breaking correlation breaks
Fast correlation Greeks by adjoint algorithmic differentiation
Adjoint methods have recently been proposed as an efficient way to calculate risk through Monte Carlo simulation. Luca Capriotti and Mike Giles extend these ideas and show how adjoint algorithmic differentiation allows for fast calculation of price…
A dynamic model for correlation
Equity markets have experienced a significant increase in correlation during the crisis, resulting in exotic derivatives portfolios realising large losses. As larger correlations in downward scenarios are already implied in the index option market in the…
