Technical paper/Modelling
How accurate is the accuracy ratio in credit risk model validation?
The author presents four methods to estimate the sample variance of the accuracy ratio and the area under the curve.
Body and tail: an automated tail-detecting procedure
The quality of a tail model, which is determined by data from an unknown distribution, depends critically on the subset of data used to model the tail. Based on a suitably weighted mean square error, the authors present a completely automated method that…
Standard errors of risk and performance estimators for serially dependent returns
In this paper, a new method for computing the standard errors (SEs) of returns-based risk and performance estimators for serially dependent returns is developed.
Statistical properties of the population stability index
This paper aims to fill a gap in the literature by providing statistical properties of the population stability index (PSI) and some recommendations on its use.
Supervisory bank risk early warning modeling: an examiner’s first line of defense
The results of this paper show that robust forward-looking statistical models are superior to backward-looking assessments of supervisory compliance, which could lead to less regulatory burden when integrated into the examination process, particularly at…
The European intraday electricity market: a modeling based on the Hawkes process
This paper deals with the modeling of trading activity on the European electricity intraday market by a self-exciting point process.
Performance of value-at-risk averaging in the Nordic power futures market
The authors investigate the performance of various value-at-risk (VaR) models in the context of the highly volatile Nordic power futures market, examining whether simple averages of models provide better results than the individual models themselves.
Corporate default risk modeling under distressed economic and financial conditions in a developing economy
The authors create stepwise logistic regression models to predict the probability of default for private nonfinancial firms under distressed financial and economic conditions in a developing economy. Their main aim is to identify and interpret the…
A joint model of failures and credit ratings
The authors propose a novel framework for credit risk modeling, where default or failure information and rating or expert information are jointly incorporated in the model.
The use of range-based volatility estimators in testing for Granger causality in risk on international capital markets
This study utilizes the extreme value theory (EVT) approach to compare the performance of a wide variety of range-based volatility estimators in the analysis of causality in risk between emerging and developed markets.
Libor replacement II: completing the generalised FMM
The FMM is upgraded to model the full term structure, pricing all possible bonds and the bank account
High-order approximations to call option prices in the Heston model
In the present paper, a decomposition formula for the call price due to Alòs is transformed into a Taylor-type formula containing an infinite series with stochastic terms. The new decomposition may be considered as an alternative to the decomposition of…
Integrating macroeconomic variables into behavioral models for interest rate risk measurement in the banking book
This paper proposed a nonparametric approach to decompose a macroeconomic variable into an interest-rate-correlated component and a macro-specific component.
Quantifying model performance
Quality of replicating portfolio is used to measure performance of a model
Two-factor Black-Karasinski pricing kernel
Analytic formulas for bond prices and forward rates are derived by expanding existing rate models
A new dynamic hedging model with futures
This paper proposes a new econometric model for the estimation of optimal hedge ratios (HRs): the Kalman filter error-correction model (KF–ECM).
Current expected credit loss procyclicality: it depends on the model
This work looks at a wide range of models to test the degree to which CECL is procyclical for different types of model.
A statistical technique to enhance application scorecard monitoring
Application scoring plays a critical role in determining the future quality of a lender’s book. It is therefore important to monitor the performance of an application scorecard to ensure it performs as expected.
Libor replacement: a modelling framework for in-arrears term rates
Andrei Lyashenko and Fabio Mercurio expand rates modelling to the post-Libor world
Governance and organizational requirements for effective model risk management
This paper expands on the foundation of model risk analytics to address the governance, organizational and human behavior challenges associated with enterprise MRM.
Using derivatives to forecast oil scenarios
Generating probability-weighted oil price scenarios from traded derivatives prices can help risk managers in the industry
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
Model calibration with neural networks
Andres Hernandez presents a neural network approach to speed up model calibration