Technical paper/Modelling
Time for multi-period capital models
Several financial institutions use single-period models to determine their credit portfolio loss distribution, calculate their loss volatility and assign economic capital.
Generalising universal performance measures
Performance and risk measurement are fundamental quantitative activities in finance, andnew ways of measuring them are always of interest. A recently proposed procedure is theuniversal performance measure. Theofanis Darsinos and Stephen Satchell show…
The score for credit
Jorge Sobehart and Sean Keenan discuss the benefits and limitations of model performance measures for default and credit spread prediction, and highlight several common pitfalls in the model comparison found in the literature and vendor documentation. To…
Asian basket spreads and other exotic averaging options
Giuseppe Castellacci and Michael Siclari of OpenLink introduce a class of exotic options that simultaneously generalises both Asian and basket options. They develop approximate analytic models for real-time pricing of complex instruments that average…
A decision model for selling park and loan services
The park and loan model is useful for gas storages and pipelines. The concept can be applied to many ‘when to sell’-type decisions. Here, Huagang ‘Hugh’ Li considers selling park and loan services as a financial and statistical decision on revenue and…
Minimising extremes
Portfolio diversification often breaks down in stressed market environments, but the co-movement of asset prices in a tail risk regime may be modelled using a coefficient of tail dependence. Here, Yannick Malevergne and Didier Sornette show how such…
Finessing fixed dividends
Equity options
Credit model evaluation
With the new Basel Capital Accord scheduled for implementation in 2005, banks are having to evaluate the credit scoring models that will enable them to meet the minimum standards for Basel’s internal ratings-based (IRB) approach. Selecting an appropriate…
Modelling growth stocks
Stock valuation models
Equity to credit pricing
Default models
Plugging into electricity
Commodities
Forward thinking
Forward simulation
Modelling credit migration
Masterclass – with JP Morgan
Modeling and measuring operational risk
Recent operational risk events such as occurred at Barings, Daiwa, Sumitomo, and other institutions show the importance of measuring and controlling such operational risk. In this paper the authors present a quantitative operational risk measurement…