Technical paper/Risk management
Compositional methods applied to capital allocation problems
In this paper, the authors examine the relationship between capital allocation problems and compositional data, and show that capital allocation principles can be interpreted as compositions.
Decomposition of portfolio risk into independent factors using an inductive causal search algorithm
This paper presents a method to estimate and decompose a portfolio’s risk along independent factors.
Static mitigation of volumetric risk
This paper formulates a functional optimization problem over a set of regular payoff functions to deal with the joint mitigation of combined price–volume risk using purely financial tools.
Risk management and portfolio optimization for gas- and coal-fired power plants in Germany: a multivariate GARCH approach
This paper investigates the hedging effectiveness of energy derivatives traded at the EEX for the purpose of mitigating the risk exposure of gas- and coal-fired power plants in Germany.
Two sides of the same coin: risk measures in the energy markets
This paper investigates whether there are existing common model features that yield consistently superior results under both VaR and ES risk metrics in the energy commodities markets.
Stochastic receding horizon control for short-term risk management in foreign exchange
The authors of this paper formalize a methodology to manage short-term FX risk.
Evaluating the performance of the skewed distributions to forecast value-at-risk in the global financial crisis
This paper models the tail behavior of daily returns and forecasting VaR in order to evaluate the performance of several skewed and symmetric distributions.
An application of sensitivity analysis to hedge funds
This paper investigates a sample of 142 live hedge funds via a DEA sensitivity analysis using a super-efficiency model.
Johnson-Omega performance measure
Alexander Passow presents a portfolio performance measure that combines the omega measure with Johnson distributions
Estimation of risk measures on electricity markets with fat-tailed distributions
This paper proposes an AR–GARCH-type EVT model with various innovations for energy price risk quantification.
Stress testing in non-normal markets via entropy pooling
Ardia and Meucci introduce a parametric entropy pooling approach to portfolios stress testing
Portfolio construction and systematic trading with factor entropy pooling
Construction of large portfolios consistent with investors' views and stress test scenarios is a challenging task, considering the volume of information to be processed. Attilio Meucci, David Ardia and Marcello Colasante introduce a technique that…
Real-time counterparty credit risk management in Monte Carlo
Real-time counterparty credit risk management in Monte Carlo
Factors on demand
Linear factor models are commonly used by portfolio managers to capture sources of risk, traditionally split between systematic and idiosyncratic types. By using the conditional link between flexible bottom-up estimation, and top-down attribution, factor…
Factors on demand
Attilio Meucci introduces a multi-asset-class return decomposition framework that extends beyond the standard systematic-plus-idiosyncratic approach. This framework, which rests on the conditional link between flexible bottom-up estimation factor models…
Corporate risk management in European energy markets
Research Papers
Risk Management After Lehman
Can the constants used by quants and risk managers be trusted in the post-Lehman environment? Chris Schlegel of Southern Company looks at some of the pitfalls risk managers need to look out for when using constants and assesses why they are both vitally…
The saddlepoint method and portfolio optionalities
Richard Martin describes the application of saddlepoint methods to the calculation of tranche payouts and expected shortfall in loss distributions. Aside from computational use in their own right, the resulting formulas motivate a forthcoming discussion…
Generalising universal performance measures
Performance and risk measurement are fundamental quantitative activities in finance, andnew ways of measuring them are always of interest. A recently proposed procedure is theuniversal performance measure. Theofanis Darsinos and Stephen Satchell show…
Operational risk: a practitioner's view
The Basel Committee on Banking Supervision ("the Committee") released aconsultative document that included a regulatory capital charge for operationalrisk. Since the release of the document, the complexity of the concept of "operationalrisk" has led to…
Using Bayesian networks to predict op risk
By combining qualitative and quantitative data, Bayesian networks offer the perfect solution to the compelling need for an integrated approach to operational risk management, say Martin Neil and Ed Tranham.