Technical paper
The UK carbon floor and power plant hedging
How to calculate expected future carbon costs and optimal valuation and hedging decisions, by adjusting Monte Carlo simulations for the UK market
Extreme value theory for heavy tails in electricity prices
This paper looks at hourly spot prices at the German electricity market and applies extreme value theory (EVT) to investigate the tails of the price change distribution.
Loan classification under IFRS 9
Vivien Brunel proposes a method to classify non-defaulted loans in accordance with IFRS 9
The double default value-of-the-firm model
This paper analyses whether the double default treatment under Basel II is appropriate to capture the asymmetric relationship between an obligor and its guarantor.
Expected shortfall and VAR: cracking the marginal allocations
A new method to estimate marginal VAR and marginal ES is presented
Optimal trading with alpha predictors
This paper studies the problem of optimal trading using general alpha predictors with linear costs and temporary impact.
Operational risk: impact assessment of the revised standardized approach on Indian banks
This paper focuses on a comparison of the capital for Indian banks as required by the current regime for capital charge calculation, versus the possible revised Standardised Approach.
Capital and funding
Quants propose KVA and FVA accounting framework based on Solvency II regulation
Probabilistic forecasting of medium-term electricity demand: a comparison of time series models
This paper focuses on medium-term probabilistic forecasting for risk management purposes.
The challenges of derivatives central counterparty interoperability arrangements
This paper stuides a relevant policy question: does interoperability of cash equity CCPs also imply that it is beneficial to introduce interoperability for derivative CCPs?
Reconciling factor optimization with portfolio constraints
This paper projects an optimal unconstrained factor portfolio onto a set of all feasible portfolios using tracking error as a distance measure.
Pricing options on trend-stationary currencies: applications to the Chinese yuan
This paper derives a closed-form version of a model with a trend-stationary, stochastic volatility exchange rate, using both a linear and quadratic trend.
Wavelet decomposition and applied portfolio management
In order to separate short-term noise from long-term trends, this paper decomposes financial return series into their time and frequency domains.
Fitting a distribution to value-at-risk and expected shortfall, with an application to covered bonds
This paper suggests simple and intuitive models for covered bonds that allow quantitative assessment of expected loss and the impact of asset encumbrance.
Operational loss with correlated frequency and severity: an analytical approach
To enable autocorrelation in the frequency distribution, this paper proposes a significant generalization of the LDA model that involves treating operational risk as a Lévy jump-diffusion.
A network-based method for visual identification of systemic risks
This paper introduces the topic of network visualization to the journal by proposing the use of a combination of data reduction techniques and overlays that allow detection of large-scale patterns and outlier activity.
Credit risk spillover between financials and sovereigns in the euro area, 2007–15
This paper proposes a method based on Granger causality to measure the level of contagion between financial institutions and sovereigns.
Close communications: hedge funds, brokers and the emergence of a consensus trade
This paper examines the network of communication practices among hedge fund managers.
Outperforming benchmarks with their derivatives: theory and empirical evidence
This paper looks for optimal explicit constructions and empirical tests in regards to pricing and hedging derivatives with coherent risk measures.
Suboptimality in portfolio conditional value-at-risk optimization
This paper considers the portfolio optimization problem, with conditional value-at-risk as the objective.
Cleaning correlation matrices
Bun, Bouchaud and Potters present a technique that allow cleaning in-sample noise from correlation matrixes
How to get maximum value from power plant hedging
Dynamic hedging is becoming more common among plant operators
Liability-side pricing of swaps
Wujiang Lou presents a framework to compute recursive CVA and FVA via Monte Carlo simulation
Bank fraud and the macroeconomy
This paper empirically tests for correlations between fraud and the macroeconomy.