Technical paper/Covariance
Allocating and forecasting changes in risk
This paper considers time-dependent portfolios and discuss the allocation of changes in the risk of a portfolio to changes in the portfolio’s components.
Uncertain risk parity
This paper treats covariance as uncertain in order to find a risk parity weighting that does not count on perfectly optimized hedges and is robust to changes in regime.
Pricing multiple barrier derivatives under stochastic volatility
This work generalizes existing one- and two-dimensional pricing formulas with an equal number of barriers to a setting of n dimensions and up to two barriers in the presence of stochastic volatility.
An empirical evaluation of large dynamic covariance models in portfolio value-at-risk estimation
This research develops a framework adopting conditional covariance modeling combined with various de-noising methods to estimate the portfolio VaR and proves the importance of DCC over the sample rolling method widely used in the industry.
Modeling operational risk depending on covariates: an empirical investigation
In this paper, the authors apply a dynamic extreme value theory (EVT) model based on a nonhomogeneous Poisson process incorporating covariates to estimate frequency, severity and risk measures for operational risk.
Comparing multivariate volatility forecasts by direct and indirect approaches
This paper investigates direct and indirect volatility evaluations in the multivariate framework by means of a Monte Carlo simulation
Comparative analysis of credit risk models for loan portfolios
In this paper, the authors compare credit risk models that are used for loan portfolios, both from a theoretical perspective and via simulation studies.
Cutting Edge introduction: Hedging dependence
Hedging dependence
An easy-to-hedge covariance swap
An easy-to-hedge covariance swap
CMS: covering all bases
CMS: covering all bases
The maturity effect on credit risk capital
In a mark-to-market approach to credit risk capital, ratings or spread volatility has the effect of making longer-maturity loans more capital-intensive. This is incorporated in the current Basel II proposals via a maturity adjustment factor. Arguing that…
Calibrating Libor
With a rich spectrum of maturities and tenors to contend with, the toughest aspect of pricing interest rate options is calibrating models of forward rates to market data. Here, Damiano Brigo and Fabio Mercurio present a scheme for simultaneously…