Technical paper
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.
Pricing path-dependent Bermudan options using Wiener chaos expansion: an embarrassingly parallel approach
In this work, the authors propose a new policy iteration algorithm for pricing Bermudan options when the payoff process cannot be written as a function of a lifted Markov process.
Supervisory bank risk early warning modeling: an examiner’s first line of defense
The results of this paper show that robust forward-looking statistical models are superior to backward-looking assessments of supervisory compliance, which could lead to less regulatory burden when integrated into the examination process, particularly at…
The impact of data aggregation and risk attributes on stress testing models of mortgage default
In this paper, the authors investigate how data aggregation and risk attributes affect the development and performance of stress testing models by studying residential mortgage loan defaults.
Stress testing household debt
The authors estimate a county-level model of household delinquency and use it to conduct “stress tests” of household debt.
Zooming in on equity factor crowding
A measure for crowding in trades is derived from supply and demand imbalances
Finite difference schemes with exact recovery of vanilla option prices
A model unifies the classic local vol and binomial trees to accurately price options
Should the central bank issue e-money?
Should a central bank take over the provision of e-money, a circulable electronic liability? The authors discuss how e-money technology changes the trade-off between public and private provision, and the trade-off between e-money and a central bank’s…
Evaluating cyclic risk propagation through an organization
Many large organizations have risk that propagates because of the dependencies between their various major organizational components. This paper addresses when cycles of dependencies exist in an organization or system of systems.
Smaller drawdowns, higher average and risk-adjusted returns for equity portfolios, using options and power-log optimization based on a behavioral model of investor preferences
The authors use a power-log utility optimization algorithm based on a behavioral model of investor preferences, along with either a call or a put option overlay, to reverse the negative skewness of monthly Standard & Poor’s 500 (S&P 500) index returns…
On extensions of the Barone-Adesi and Whaley method to price American-type options
This paper provides an efficient and accurate hybrid method to price American standard options in certain jump-diffusion models and American barrier-type options under the Black–Scholes framework.
Toward reducing the operational risk of emerging technologies adoption in central counterparties through end-to-end testing
This paper discusses the software-testing challenges of traditional central counterparties as well as the risks, biases and problems related to new technologies. It also outlines a set of requirements for an end-to-end validation and verification…
Machine learning hedge strategy with deep Gaussian process regression
An optimal hedging strategy for options in discrete time using a reinforcement learning technique
The European intraday electricity market: a modeling based on the Hawkes process
This paper deals with the modeling of trading activity on the European electricity intraday market by a self-exciting point process.
Concentration in cleared derivatives: the case for broadening access to direct central counterparty clearing
In this paper, the authors explore the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs).
Finding the corporate credit cycle for IFRS 9
Decomposing corporate default rates helps identify credit cycles
Does the source of information influence depositors’ withdrawal intentions during operational events?
The objective of this paper is to identify whether depositors’ intentions to withdraw funds during operational risk events differ based on the source of information.
A FAVAR modeling approach to credit risk stress testing and its application to the Hong Kong banking industry
In this paper, a credit risk stress testing model based on the factor-augmented vector autoregressive (FAVAR) approach is proposed to project credit risk loss under stressed scenarios.
Too much, too young: improving the client clearing mandate
We present new evidence of the distribution of risk in client portfolios and use this to motivate clearing policy improvements.
The liquefied natural gas spot market and valuation of the rerouting option
The goal of this paper is twofold: (1) to describe the new outlook of LNG markets, which has become more and more spot-centric, with Asian LNG futures bringing transparency to spot and forward prices; and (2) to address the valuation of the rerouting…
Performance of value-at-risk averaging in the Nordic power futures market
The authors investigate the performance of various value-at-risk (VaR) models in the context of the highly volatile Nordic power futures market, examining whether simple averages of models provide better results than the individual models themselves.
Credit exposure under the new standardized approach for counterparty credit risk: fixing the treatment of equity options
The new standardized approach for measuring counterparty credit risk exposures (SA-CCR) will replace the existing regulatory standard methods for exposure quantification. This paper provides empirical evidence that the SA-CCR parameters are not aligned…
Hypothetical yield curve scenarios for credit stress testing
In this paper, we discuss a set of hypothetical yield curve shift scenarios generated by applying extreme value distributions and a shaping procedure. These statistically derived hypothetical stress scenarios could be susceptible to model risk, leading…
Decomposing supply shocks in the US electricity industry: evidence from a time-varying Bayesian panel vector autoregression model
This paper investigates spillovers between electricity supply shocks and US growth, using monthly data from forty-eight US states from January 2001 to September 2016, and employs a novel strategy for electricity supply shocks based on a time-varying…