Risk factors
Quants tout exposure-based approach to op risk modelling
Ebor especially suited to modelling loss events such as legal claims, say proponents
Modeling dependent risk factors with CreditRisk+
In this paper, an extension of the CreditRisk+ model, called the mixed vector model, is proposed.
Impact of D-vine structure on risk estimation
In this paper, a sensitivity analysis using pair–copula decomposition of multivariate dependency models is performed on estimates of value-at-risk (VaR) and conditional value-at-risk (CVaR).
Study warns against ignoring factors’ procyclicality
Common multi-factor strategies have hidden macroeconomic exposures, research shows
Global fragmentation looms in FRTB data pooling stand-off
Smaller banks unwilling to hand over localised trade information to data utilities
Canada’s banks go it alone with FRTB data utility
Local lenders reject advances of major data utilities to build own solution
FRTB: banks grapple with hard-to-model risks
Swiss, UK bank efforts to comply with regulators’ risks-not-in-VAR rules may be undone by transition to FRTB
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.
DTCC muscles in on FRTB data pooling race
Rival to Bloomberg and Markit offerings claims ability to squash banks’ NMRF exposure by 50%
FRTB: proxy risk factors may trigger model failures
Swapping non-modellable risk factors for proxies may make it harder to pass P&L attribution test
FRTB standardised approach threatens commodity hedging
Basel language would force unnatural treatment of offsetting positions
Data woes force dividend swaps out of Simm update
Dealers have different approaches to pricing dividend risk factors
Statistical risk models
In this paper, the authors give complete algorithms and source code for constructing statistical risk models.
Identification and capitalisation of non-modellable risk factors
Adolfo Montoro, Tim Becker and Lars Popken propose techniques for systematically capturing and categorising non-modellable risk factors and risk-adequate aggregation
EC gold-plating of FRTB raises risk of global divergence
Some interpret draft CRR II changes to NMRF framework as raising the bar for compliance
FRTB will spark rise in basis risk, firms warned
Dealers using standardised approach may be incentivised to push clients towards less precise hedges
Equal risk allocation with carry, value and momentum
The authors of this paper analyze an equal-weight portfolio of global cross-asset-class risk factor exposures.
FRTB data pooling crawls into action
Dealers voice concerns on data pooling as industry initiative to model risk factors faces significant challenges
Banks plan risk factor exclusion to avoid FRTB surcharge
Firms hope to leave out non-modellable risk factors deemed "immaterial"
Multifactor risk models and heterotic CAPM
The authors of this paper give a complete algorithm and source code for constructing general multifactor risk models via any combination of style factors, principal components and/or industry factors.
FRTB standard rules cause worries about duplication
Sensitivity-based approach means “we have to do everything twice”, complains one head of trading
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.
Banks seek to counter FRTB internal model add-on
Parallel shifts and trading desk reshuffles mooted as fix for non-modellable risk factors