Technical paper
The efficient application of automatic differentiation for computing gradients in financial applications
Automatic differentiation is the theme of this paper. The authors show that many functions in calibration and inverse problems, exhibit a natural substitution structure. A significant speedup is achieved compared with common reverse-mode AD.
Updating the option implied probability of default methodology
This paper updates the option implied probability of default (iPoD) approach recently suggested in the literature.
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
Diversification benefit of operational risk
Torresetti and Le Pera explore the relevance of the diversification benefit from a theoretical and practical viewpoint
Network centrality, failure prediction and systemic risk
This paper offers a promising new avenue of investigation into how information on firms’ interconnectivity can improve existing credit models.
Systemic risk and the sovereign-bank default nexus: a network vector autoregression approach
This paper investigates European bond markets; looking at credit risk spillover effects between financial institutions and sovereigns in the euro area.
European government bond dynamics and stability policies: taming contagion risks
This paper develops methodologies to measure spillover risks in European sovereign bond markets in the period 2004–15.
Central counterparties in crisis: the Hong Kong Futures Exchange in the crash of 1987
This Forum contribution shows the reader the lessons that can be learned from one of the few occasions in history when a CCP got into severe difficulty.
Interoperability between central counterparties
The authors investigate interoperability from the perspective of the multilateral netting property of central clearing.
Reaction functions of the participants in Colombia’s large-value payment system
This paper investigates how participants react to major incidents in a payment system, contributing to the literature on payment reaction functions.
Identification of over and under provision of liquidity in real-time payment systems
The authors study the issue of liquidity provision in the context of payment systems where participating banks have flexibility on the timing of their outgoing payments during the settlement day.
Are all collections equal? The case of medical debt
This paper examines the predictive value of medical collections in assessing consumer creditworthiness with credit scoring models.
Commodity premia: It’s all about risk control
Strategies based on commodity risk premia can be rewarding – but beware common pitfalls
Downside risk measure performance in the presence of breaks in volatility
This paper proposes a loss function-based framework for the comparative measurement of the sensitivity of quantile downside risk measures to breaks in volatility or distribution.
Liquidity stress testing: a model for a portfolio of credit lines
This paper demonstrates how cash outflows due to credit lines can be modeled in a liquidity stress test.
AERB: developing AIRB PIT–TTC PD models using external ratings
In this paper, the authors show how one can use a certain class of models for modeling portfolios such as large corporates, banks and insurance companies.
A mean-reverting scenario design model to create lifetime forecasts and volatility assessments for retail loans
The authors of this paper develop a modeling framework that can incorporate mean-reverting scenarios into any scenario-based forecasting model.
Under the radar: structural alpha in the small-cap equity market
This paper identifies a number of structural inefficiencies in the US small-cap equity market that may be exploited to generate alpha.
The dynamics of energy futures and equity sectors: evidence from the United States and Canada
This paper investigates a sector-rotation strategy in order to elucidate two congruent objectives.
Diffusing explosive portfolio performance evaluation of high frequency traders
This paper introduces an efficient Sharpe ratio (ESR) that diffuses explosive ASRs for HFT so that they are comparable to SRs for other actively managed funds.
Correlation skew via stochastic correlation and jumps
Valer Zetocha introduces a correlation model based on the Jacobi process with jumps
Facilitating appropriate compensation of electric energy and reserve through standardized contracts with swing
This study focuses on standardized energy and reserve contracts with swing (flexibility) in their contractual terms.
Approximation of the price dynamics of heating degree day and cooling degree day temperature futures
This paper proposes an approximation that makes the price dynamics of HDD and CDD temperature futures linearly dependent on the underlying temperature.
Calculation of a term structure power price equilibrium with ramping constraints
This paper proposes a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices.