Technical paper
Standardized measurement approach extension to integrate insurance deduction into operational risk capital requirement
The SMA proposed in BCBS (2016) presents several issues: in particular, its two components are not sufficient to discriminate banking institutions by risk profile, thus penalizing the more virtuous ones. This paper describes a possible solution to extend…
Toward an efficient people-risk capital allocation for financial firms: evidence from US banks
In this paper, the authors address the issue of an efficient people-risk capital allocation for financial institutions.
Efficient trading in taxable portfolios
This paper determines life-cycle trading strategies for portfolios subject to the US tax system.
Exploration risk in international oil and gas shareholder returns
This paper focuses upon the oil and gas industry, examining the association between exploration activity risk and company shareholder returns.
Portfolio concentration and equity market contagion: evidence on the “flight to familiarity” across indexing methods
This paper sheds light on the entanglement of index weighting schemes.
Local volatility from American options
De Marco and Henry-Labordère provide an approximation of American options in terms of the local volatility function
Applied risk management series: gas storage valuation strategies
A look at the valuation of gas storage facilities and show how a deeper analysis of the value formation can offer insights for P&L optimisation and risk management
A Darwinian view on internal models
In this paper, Paul Embrechts reviews discussions on regulation within banking (Basel III and IV) and insurance (Solvency II and Swiss Solvency Test (SST)) from a historical, personal and academic point of view.
Risk management and regulation
The author presents a systematic review of the chronological evolution of risk management, in tandem with financial innovation and methodological advances in derivatives pricing.
A note on the standard measurement approach versus the loss distribution approach–advanced measurement approach: the dawning of a new regulation
This paper presents a nonexhaustive review of the literature on operational risk quantification under a combination of the loss distribution approach model – the most commonly used of the AMA models – and extreme value theory.
Derivatives pricing under bilateral counterparty risk
The authors consider risk-neutral valuation of a contingent claim under bilateral counterparty risk using the well-known reduced-form approach.
Networks of log returns and volatilities of international stock market indexes
In this paper, the author builds dynamic networks based on correlation and transfer entropy, using both the log returns and the volatilities of 97 stock market indexes from various parts of the world between 2000 and 2016
Systemic risk management in financial networks with credit default swaps
In this paper the authors study insolvency cascades in an interbank system, in which banks are permitted to insure their loans with credit default swaps sold by other banks.
Leverage and uncertainty
By extending the Kelly criterion to a simple probabilistic model with an additional tail risk outcome associated with uncertainty, this paper looks beyond risk and evaluates how uncertainty constrains optimal leverage.
Optimising VAR and terminating Arnie-VAR
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Lifecycle investing with the profitable dividend yield strategy: simulations and nonparametric analysis
Using simulations, the author shows that life-cycle investing implemented on highly profitable and high dividend yield stocks (the profitable dividend yield strategy) provides a compelling solution to the suboptimality problem by leveraging on the…
Enhancing enterprise value by trading options
This paper considers the problem of enhancing an investment activity by regularly adding an option trade to the portfolio mix and presented results for the single underlier of the S&P 500 index, with the underlying activity being either long the index or…
Machine learning for trading
Gordon Ritter applies reinforcement learning to dynamic trading strategies with market impact
Ranking the economic importance of countries and industries
The authors present a methodological framework for quantifying interdependencies in the global market and for evaluating risk levels in the worldwide financial network.
Asset price bubbles and risk management
The purpose of this paper is to review the literature on asset price bubbles to study the impact that the existence of bubbles has on standard risk management methodologies.
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.