Technical paper
Sculpting implied volatility surfaces of illiquid assets
From the stock cumulative distribution function an arbitrage-free volatility surface is derived
Islamic mutual funds: contracts, structures, screening and pricing mechanisms
The authors investigate the contracts, structures, screening, pricing mechanisms of Islamic Mutual Funds and attempt to harmonize and standardize the benchmarks of these funds
Quantification of model risk with an application to probability of default estimation and stress testing for a large corporate portfolio
This paper discusses the building of obligor-level rather than segment-level hazard rate corporate probability of default models for stress testing.
The statistics of capture ratios
This paper investigates the statistical problem of estimating the capture ratio based on a finite number of observations of a fund’s returns.
Interpolating commodity futures prices with Kriging
A futures price’s term structure is built to account for trends and seasonality effects
Adjoint differentiation for generic matrix functions
The authors develop and apply a formula to derive closed-form expressions in particular quantitative finance cases.
Simulating the Cox–Ingersoll–Ross and Heston processes: matching the first four moments
This paper investigates various techniques for the CIR and Heston models.
How does the pandemic change operational risk? Evidence from textual risk disclosures in financial reports
The authors investigate changes in operational risk profiles of the financial industry following the Covid-19 pandemic.
Deep calibration of rough volatility models
Rough vol models are calibrated and fitted to SPX and Vix smiles
Multilevel Monte Carlo simulation for VIX options in the rough Bergomi model
The authors consider the pricing of the Chicago Board options Exchange VIX, demonstrating experiments highlighting the efficiency of a multilevel approach in pricing of VIX options.
Modeling systemic operational risk in the Covid-19 pandemic
This paper introduces existing and novel epidemiology models and investigates how government responses to the Covid-19 pandemic impacted these models.
Pricing the correlation skew with normal mean–variance mixture copulas
The author puts forward a pricing methodology for European multi-asset derivatives that consists of a flexible copula-based method that can reproduce the correlation skew and is efficient enough for use with large baskets.
Automatic implicit function theorem
New technique can improve use of adjoint algorithmic differentiation in calibration problems
Creating factor clusters in the alternative Undertakings for Collective Investment in Transferable Securities (UCITS) universe
The authors identify 7 clusters and provide insight into their current or prospective UCITS holdings by observing their performance in the context of the relevant cluster.
Data-driven wrong-way risk
A calculation method for regulatory CVA wrong-way risk based on credit and exposure is introduced
Changes in operational risk and its determinants under Covid-19
The authors investigate the operational risk impact of the Covid-19 pandemic on Chinese commercial banks and the moderating effect of bank size, business diversification and regulatory records.
“Closing the gaps: moving forward on tail risks in central clearing”: a central bank of issue perspective
The authors explain the priorities for CCP recovery and resolution from a central bank of issue perspective, focussing on structural barriers and how gaps could be overcome.
Distance to default based on the CEV–KMV model
The author applies the CEV process to the KMV model in order to assess default risk, finding that this method improves forecasting ability.
Model risk quantification based on relative entropy
This paper proposes a minimum relative entropy technique for challenging derivatives pricing models that can also assess the model risk of a target portfolio.
An effective credit rating method for corporate entities using machine learning
The authors propose a new method to design credit risk rating models for corporate entities using a meta-algorithm which exploits information embedded in expert-assigned credit ratings to rank customers.
A multivariate model for hybrid wind–photovoltaic power production with energy portfolio optimization
The authors model the power production and income of a wind-photovoltaic energy plant to determine the portfolio that maximises profitability as well as the optimal choice between wind and photovoltaic plants.
Stressing of migration matrixes for International Financial Reporting Standard 9 and Internal Capital Adequacy Assessment Process calculations
This paper demonstrates that correlation estimates are sensitive to model assumptions and estimation methodology by comparing three methods used to stress rating transition matrixes.
Generalized additive modeling of the credit risk of Korean personal bank loans
The authors demonstrate a nonlinear impact of loan and borrower characteristics when applying a GAM framework to personal loans taken from a Korean bank.
Stressed distance to default and default risk
The authors propose a stressed version of distance to default to measure time-varying corporate default risk in the event of a systematic stress scenario.