Technical paper
The robustness of estimators in structural credit loss distributions
This paper examines the performance of MM, ML and OLS estimators through Monte Carlo experiments for various sample sizes and correlation values when the true data is from non-Gaussian processes.
Bayesian operational risk models
This paper proposes a methodology to frame risk self-assessment data into suitable prior distributions that can produce posterior distributions from which accurate operational risk measures.
Day-ahead forward premiums in the Texas electricity market
This paper looks at forward and spot market-price convergence in the competitive Texas electricity market in the presence of large-scale wind generation.
Trend detection under erroneous observations: application to quantitative financial strategies
This paper shows how to handle the problem of trend detection in the context of trend-following trading strategies, when the data is potentially erroneous. The questions raised in this paper are important for many commodity trading advisors, and more…
Numerical valuation of derivatives in high-dimensional settings via partial differential equation expansions
This paper presents a new numerical approach to solving high-dimensional partial differential equations that arise in the valuation of exotic derivative securities. The resulting numerical solutions are carefully compared in terms of accuracy and run…
Stress testing in non-normal markets via entropy pooling
Ardia and Meucci introduce a parametric entropy pooling approach to portfolios stress testing
Default predictors in credit scoring: evidence from France’s retail banking institution
This paper presents the set-up of a behavioral credit-scoring model, and estimates such a model using an auto loan data set of one of the largest multinational financial institutions based in France.
A simple, transparent and rational weighting approach to combining different operational risk data sources
The authors propose a generic weighting function based on a nonparametric approach that can be used to weight the different distributions.
Scaling operational loss data and its systemic risk implications
A scaling methodology to include external data in operational risk calculation is introduced
Notes on alpha stream optimization
This paper discusses aspects of optimizing weights for alpha streams (by alpha streams the author means a sequence of predictions of expected returns for each asset given by different models employed by portfolio managers).
Systematic risk and yield premiums in the bond market
This paper develops a method for estimating the full systematic risk of bonds and thereby enables a fuller understanding of the risk and return on fixed-income instruments.
Approximations of value-at-risk as an extreme quantile of a random sum of heavy-tailed random variables
The authors of this paper study the approximation of extreme quantiles of random sums of heavy-tailed random variables. More specifically, sub-exponential random variables.
Nonmaturity deposits and banks’ exposure to interest rate risk: issues arising from the Basel regulatory framework
The authors of this paper address the shortcomings of a major assumption in the Basel accords regarding interest-risk exposure and propose two models to incorporate optionality features that are often ignored.
The impact of model risk on capital reserves: a quantitative analysis
This paper analyzes and quantifies the idea of model risk in the environment of internal model building.
Better risk and performance estimates with factor-model Monte Carlo
This paper presents a solution to a common problem in asset and portfolio risk, when a manager has such a short history of asset returns that risk and performance measure estimates are unreliable.
A novel partial integrodifferential equation-based framework for pricing interest rate derivatives under jump-extended short-rate models
Interest rate derivatives under jump-extended short-rate models have commonly been valued using lattice methods. This paper proposes a much faster and more accurate valuation method based on partial integrodifferential equations.
Improved estimation methods for value-at-risk, expected shortfall and risk contributions with high precision
This paper proposes a technique based on the saddlepoint approximation to quickly and accurately estimate common portfolio risk measures and their associated marginal component contributions.
An efficient numerical partial differential equation approach for pricing foreign exchange interest rate hybrid derivatives
This paper discuss efficient pricing methods via a partial differential equation (PDE) approach for long-dated foreign exchange (FX) interest rate hybrids under a three-factor multicurrency pricing model with FX volatility skew.
Applied risk management series: Counterparty risk exposure metrics
Carlos Blanco outlines an approach to counterparty risk using potential future exposure
Does skewness matter to the pricing of commodity futures?
Paper designs and tests performance of new strategy in commodity futures
The damped Crank–Nicolson time-marching scheme for the adaptive solution of the Black–Scholes equation
This paper deals with error estimators and mesh adaptation for a space-time finite element discretization of the basic Black-Scholes equation. An interesting modern numerical mathematical technique for a fundamental pricing equation in finance is…
MVA by replication and regression
Burgard and Kjaer method is extended to include margin valuation adjustment