Technical paper
Going downturn
There is much debate regarding the definition of 'downturn' loss given default (LGD). In this article, Michael Barco offers an analytic approach for calculating downturn LGD so that credit risk capital is not underestimated or overestimated
Evaluating the policy implications of the other two pillars of Basel II
This brief evaluates the supervisory-process and market-discipline pillars of the Basel II bank regulatory framework.
Optimized enterprise risk management
As the result of the increasing costs of risk and compliance activities, enterprises are beginning to integrate compliance and risk management into a comprehensive enterprise risk management function and thus proactively address all sorts of risk,…
The underlying dynamics of credit correlations
Research Papers
Risk Sharing - Constructing sustainable pensions
Technical papers
Modelling inflation
Lars Kjaergaard models inflation using a three-factor Gaussian method. This gives a simple description of derivatives linked to inflation and interest rates, and allows for fast evaluation. He then shows how the model can be calibrated
Loan portfolio value
Using a conditional independence framework, Oldrich Vasicek derives a useful limiting form for the portfolio loss distribution with a single systematic factor. He then derives a risk-neutral distribution suitable for traded portfolios, and shows how…
A telling scope
The number of technical articles submitted each year to Risk has stabilised at around 90, and a high proportion of them are still about credit derivatives and credit portfolio risk analysis. In fact, in our Cutting Edge pages and behind the scenes we…
The probability approach to default probabilities
Default estimation for low-default portfolios has attracted attention as banks contemplate the requirements of Basel II's internal ratings-based rules. Here, Nicholas Kiefer applies the probability approach to uncertainty and modelling to default…
Pricing with a smile
In the January 1994 issue of Risk, Bruno Dupire showed how the Black-Scholes model can be extended to make it compatible with observed market volatility smiles, allowing consistent pricing and hedging of exotic options