Technical paper
Validation of index and benchmark assignment: adequacy of capturing tail risk
This paper provides practical recommendations for the validation of risk models under the Targeted Review of Internal Models (TRIM).
A simulation-based model for optimal demand response load shifting: a case study for the Texas power market
This paper describes a case study of analyzing DR load-shifting strategies for a retail electric provider for the Texas (ERCOT) market using a Monte Carlo simulation with stochastic loads and settlement prices.
The impact of the cross-shareholding network on extreme price movements: evidence from China
By using information about the ownership structure of listed companies from 2004 to 2016, the authors construct the cross-shareholding network for each year and examine the effects of the network position of a firm on extreme price movement.
Currency risk in foreign currency accounts for small and medium-sized businesses
This paper estimates the currency exposure before and after the hedging of active foreign currency (FC) accounts, using stochastic models for spot exchange rates and cashflow movements.
The Chebyshev method for the implied volatility
In this paper, the authors propose a bivariate interpolation of the implied volatility surface based on Chebyshev polynomials. This yields a closed-form approximation of the implied volatility, which is easy to implement and to maintain.
One-dimensional Markov-functional models driven by a non-Gaussian driver
The aim of this paper is to move away from a Gaussian assumption and to provide new algorithms that can be used to implement a Markov-functional model driven by a more general class of one-dimensional diffusion processes.
The swap market Bergomi model
The combination of two popular volatility models sharpens the hedging of exotic rate derivatives
Brent crude oil spot and futures prices: structural break insights
This study focuses on the analysis of long-run and short-run relationships between Brent crude oil spot and futures prices during the first Gulf War (1990–91) and the global financial crisis.
Estimation of value-at-risk for conduct risk losses using pseudo-marginal Markov chain Monte Carlo
The authors propose a model for conduct risk losses, in which conduct risk losses are characterized by having a small number of extremely large losses (perhaps only one) with more numerous smaller losses.
Cyber risk management: an actuarial point of view
This paper points out the peculiarities of cyber insurance contracts compared with the classical nonlife insurance contracts from both the insurer’s and the insured’s perspectives. The main actuarial principles that are fundamental to any valuation in a…
Costs of capital under credit risk
In cost-of-capital computations, credit risk is only taken into consideration at the level of the debt beta approach. We show that applications of the debt beta approach in company valuation suffer from unrealistic assumptions about the market index and…
Basel risk weight functions and forward-looking expected credit losses
The authors establish that the combination of lifetime ECL and the Basel Capital Adequacy Framework, which relies on a one-year horizon, results in capital overestimation. Alongside this finding, and in order to alleviate the problem, they propose two…
Credit valuation adjustment wrong-way risk in a Gaussian copula model
In this paper, we present an analytical expression for CVA with WWR under the assumption of the lognormally distributed trade value.
ADOL: Markovian approximation of a rough lognormal model
A variation of the rough volatility model is introduced by plugging in a different stochastic process
Stay ahead of the fixing lag
The price of fund-linked derivatives depends on the fixing lag of the underlying funds
Measuring expected shortfall under semi-parametric expected shortfall approaches: a case study of selected Southern European/Mediterranean countries
In this paper, the authors investigate the applicability of semi-parametric approaches for estimating expected shortfall.
Crash risk exposure, diversification and cost of equity capital: evidence from a natural experiment in China
Based on a broad sample of Chinese listed firms for the period 2001–10, this study investigates the effect of stock price crash risk exposure on the cost of equity capital and uses the split share structure reform as an exogenous shock to test whether…
Backtesting expected shortfall: a simple recipe?
In this paper, the authors introduce a new ES backtesting framework based on the duality between coherent risk measures and scale-invariant performance measures.
The impact of enterprise risk management on the performance of companies in transition countries: Serbia case study
In this paper, seven hypotheses are defined, on the basis of which a theoretical model is developed to examine how different sources of enterprise risk affect the operational performance of Serbian companies and their risk of losing market position.
Quantification of the estimation risk inherent in loss distribution approach models
In this paper, the authors contribute to the measurement of model risk by focusing on the quantification of estimation risk.
A triptych approach for reverse stress testing of complex portfolios
Pascal Traccucci et al present an extended reverse stress test triptych approach with three variables
Debt and the oil industry: analysis on the firm and production level
This paper analyzes the relationship between debt and the production decisions of companies active in the exploration and production of oil and gas in the United States.
Variance optimal hedging with application to electricity markets
In this paper, the author uses the mean–variance hedging criterion to value contracts in incomplete markets.
A study on window-size selection for threshold and bootstrap value-at-risk models
This paper investigates the effects of window-size selection on various models for value-at-risk (VaR) forecasting using high-performance computing.