Technical paper/Correlation
Litigation risk assessment: a novel quantitative recency–frequency–monetary model
The authors assess litigation risk and credit risk of companies and investigate interrelationships between these risks, finding a correlation between them.
Infrequent MtM reduces neither value-at-risk nor backtesting exceptions
Frequency of repricing impacts volatility and correlation measures
Estimating the correlation between operational risk loss categories over different time horizons
The authors propose and demonstrate the value of a model with which mathematical techniques can be applied to analytically calculate means, variances and covariances more accurately than Monte Carlo simulations.
What have we learned from 20 million historical US stock data?
The author offers a statistical characterization of the US stock market from January 3, 1995 to June 11, 2021.
Smile-consistent basket skew
An analytic approximation for the implied volatility surface of basket options is introduced
Data-driven wrong-way risk
A calculation method for regulatory CVA wrong-way risk based on credit and exposure is introduced
How a credit run affects asset correlation
This paper analyzes how soaring demand in the lending market shortly before a financial crisis can affect one of the main parameters in the internal ratings-based approach: the asset correlation.
Correlations in operational risk stress testing: use and abuse
The paper presents an analysis of correlation effects of economic factors on the operational risk losses of a medium-large UK retail bank, and it recommends that causal factors that effect operational risk should be identified.
Optimal turnover, liquidity and autocorrelation
A novel optimal execution approach via continuous-time stochastic processes is introduced
Fat-tailed factors
Independent component analysis is proposed as an alternative to principal component analysis
Nonlinear risk decomposition for any type of fund
A risk decomposition by fund manager, factor or instrument is proposed
Using equity, index and commodity options to obtain forward-looking measures of equity and commodity betas and idiosyncratic variance
This paper presents a means to extract forward-looking measures of equity and commodity betas, and idiosyncratic variance.
Fractional differencing: (in)stability of spectral structure and risk measures of financial networks
This paper studies how correcting for the order of differencing leads to altered filtering and risk computation for inferred networks.
Correlated idiosyncratic volatility shocks
To capture the commonality in idiosyncratic volatility, the authors propose a novel multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model called dynamic factor correlation (DFC).
Equally diversified or equally weighted?
New diversification measure enables construction of equally diversified portfolios
Eigenportfolios of US equities for the exponential correlation model
In this paper, the eigendecomposition of a Toeplitz matrix populated by an exponential function in order to model empirical correlations of US equity returns is investigated.
Detecting changes in asset co-movement using autoencoders
ARR aims to anticipate volatility patterns to provide signals for risk management and trading
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
Study of correlation impact on credit default swap margin using a GARCH–DCC-copula framework
In this paper, the authors establish generalized autoregressive conditional heteroscedasticity–dynamic conditional correlation (GARCH–DCC) and constant conditional correlation (CCC) copula model frameworks to study time-varying correlation among credit…
On probability of default and its relation to observed default frequency and a common factor
This paper considers a definition of through-the-cycle as independent from an economic state that can result in a time-varying TTC probability of default.
Asset correlation estimation for inhomogeneous exposure pools
This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in reality it is not.