Technical paper/Extreme value theory (EVT)
Exceptional operational risks: Three myths debunked
Are there common features among exceptional operational risks beyond their defining characteristics of rarity and severe consequences?
Minimising extremes
Portfolio diversification often breaks down in stressed market environments, but the co-movement of asset prices in a tail risk regime may be modelled using a coefficient of tail dependence. Here, Yannick Malevergne and Didier Sornette show how such…
The maturity effect on credit risk capital
In a mark-to-market approach to credit risk capital, ratings or spread volatility has the effect of making longer-maturity loans more capital-intensive. This is incorporated in the current Basel II proposals via a maturity adjustment factor. Arguing that…
The relativity of volatility
Stress testing
Modeling and measuring operational risk
Recent operational risk events such as occurred at Barings, Daiwa, Sumitomo, and other institutions show the importance of measuring and controlling such operational risk. In this paper the authors present a quantitative operational risk measurement…