Technical paper
Fast, accurate and straightforward extreme quantiles of compound loss distributions
In this paper, the author presents an easy-to-implement, fast and accurate method for approximating extreme quantiles of compound loss distributions (frequency + severity), which are commonly used in insurance and operational risk capital models.
Central counterparty recovery and resolution: the European perspective
This paper contributes to the literature on the recovery and resolution of central counterparties (CCPs) by exploring the key components of the recent European legislative proposal on the recovery and resolution of CCPs, its main differences with the…
Nonmonotonic trade-offs of tiering in a large-value payment system
This paper studies tiering in the case of a national payment system in an emerging economy: the large-value payment system Sistemas de Cuentas de Depósito (CUD, the Spanish acronym for the Deposit Accounts System) operated by the Colombian central bank.
Nondefault loss allocation at central counterparties
In this paper, the authors answer three questions about the appropriate allocation of nondefault losses at central counterparties.
Estimating “hedge and auction” liquidation costs in central counterparties: a closeout risk approach
This paper shows how the closeout risk framework can be extended to realistically represent and simulate the potential outcomes of “hedge and auction” default management policies currently implemented by several major central counterparties.
Management of behavioral risk in the first line of defence
This paper discusses key features of fighting behavioral risk in the business line of operations as the central hub for all transactions in a bank.
Behavioral risks at the systemic level
By comparing the Libor and FX benchmark manipulation scandals, this paper describes how misbehavior emerged independently in both of these markets and the conditions that permitted the misconduct to survive and thrive.
An uncertainty quantification framework for the achievability of backtesting results of trading strategies
In this paper, the authors propose a framework for implementing and backtesting trading strategies.
A forward dynamic optimization strategy under contango storage arbitrage with frictions
The goal of this paper is to explain and improve the offshore oil storage trade observed in a contango market using a forward dynamic optimization strategy. The strategy is developed using trades in forward contracts and contrasted with the literature.
A three-factor model on the natural gas forward curve including temperature forecasts
This paper introduces a three-factor model that jointly describes both natural gas forward prices and temperature forecast dynamics.
Risk and abnormal returns in markets for congestion revenue rights
This paper develops a novel methodology for estimating the systematic risk of individual financial transmission rights and detecting the presence of abnormal returns among these financial instruments.
Calibrating Heston for credit risk
Marco de Innocentis and Sergei Levendorskiĭ describe a faster and more accurate method for market-implied calibration of the Heston model
Haircutting non-cash collateral
Wujiang Lou develops a parametric haircut model to conduct sensitivity tests and capture market liquidity risk
On the correlation and parametric approaches to calculation of credit value adjustment
This paper develops a connection between the Hull–White parametric approach and the PCL correlation approach for CVA calculation.
Bayesian analysis in an aggregate loss model: validation of the structure functions
This paper considers the empirical evaluation of a collective risk model with the geometric as the primary distribution and the exponential as the secondary distribution.
The use of the triangular approximation for some complicated risk measurement calculations
The author introduces the triangular approximation to the normal distribution in order to extract closed- and semi-closed-form solutions that are useful in risk measurement calculations.
Stochastic modeling of photovoltaic power generation and electricity prices
This paper proposes a stochastic model for the maximal production of PV power on a daily basis, based on data from three transmission system operators in Germany.
Addressing probationary period within a competing risks survival model for retail mortgage loss given default
This paper presents a novel approach to modeling retail mortgage LGD estimation.
Reliability and agreement of credit ratings in the Mexican fixed-income market
This paper borrows concepts from measurement, test and psychometric theories to explore the issue of credit ratings in the Mexican corporate bond market.
When banks venture beyond home turf: consequences for loan performance
In this paper, the authors analyze the credit risk of Japanese regional banks when they lend to areas outside their original operational bases.
European option pricing under geometric Lévy processes with proportional transaction costs
This paper considers the problem of European option pricing in the presence of a proportional transaction cost when the price of the underlying follows a jump–diffusion process.
Robust option pricing with characteristic functions and the B-spline order of density projection
This paper extends and refines the method of option pricing by frame projection of risk-neutral densities to incorporate B-splines.
A generalized risk budgeting approach to portfolio construction
This paper proposes a generalized risk budgeting approach to portfolio construction.
Efficient valuation of equity-indexed annuities under Lévy processes using Fourier cosine series
This paper proposes an efficient algorithm to value two popular crediting formulas found in equity-indexed annuities – APP and MPP – under general Lévy-process-based index returns.