Technical paper/Value-at-risk (VAR)
Time for multi-period capital models
Several financial institutions use single-period models to determine their credit portfolio loss distribution, calculate their loss volatility and assign economic capital.
Operational VAR: a closed-form approximation
Klaus Böcker and Claudia Klüppelberg investigate a simple loss distribution model for operational risk. They show that, when loss data is heavy-tailed (which in practice it is), a simple closed-form approximation for operational VAR can be obtained. They…
An economic capital approach for hedge fund structured products
Hedge fund structured products are increasingly favoured by investors. Banks have been swiftly developing their commercial offers to meet this demand. However, the theoretical framework for the risk management of these products remains little explored,…
Time for multi-period capital models
Several financial institutions use single-period models to determine their credit portfolio lossdistribution, calculate their loss volatility and assign economic capital. Here, Kevin Thompson,Alistair McLeod, Panayiotis Teklos and Shobhit Gupta…
Modelling counterparty credit exposure for credit default swaps
Modelling counterparty credit exposure for credit derivatives is more complicated than for non-credit products, since the reference credit and counterparty can exhibit positive default correlation. Here, Christian Hille, John Ring and Hideki Shimamoto…
A Markovian approach to modelling correlated defaults
Vladyslav Putyatin, David Prieul and Svetlana Maslova unveil a simple dynamic binomial credit model with a Poissonian mixing distribution to satisfy the constraints faced by financial institutions assessing their credit exposure in a consistent manner…
Estimating economic capital allocations for market and credit risk
Value-at-Risk (VAR) measures often are used as a basis for setting so-called"economic capital" or buffer stock measures of equity capitalization requirements.VAR measures do not account for the time value of money or theequilibrium required return…
Sensible and efficient capital allocation for credit portfolios
Michael Kalkbrener, Hans Lotter and Ludger Overbeck construct a new approach to economiccapital allocation, showing that three axioms uniquely determine a capital allocation scheme,and, more importantly, that any allocation satisfying the axioms is…
Understanding the expected loss debate
The final draft of the new global Accord on bank regulatory capital – Basel II – has been delayed. A critical and unresolved issue is whether banks should include expected losses in their measure of credit risk. The IMF's Paul Kupiec reports on efforts…
Using the grouped t-copula
Student-t copula models are popular, but can be over-simplistic when used to describe credit portfolios where the risk factors are numerous or dissimilar. Here, Stéphane Daul, Enrico De Giorgi, Filip Lindskog and Alexander McNeil construct a new,…
Operational and market risks of a regulated power utility
Victor Dvortsov and Ken Dragoon present an analytical method for including market and operational risks when estimating utility portfolio value-at-risk.
Operational and market risks of a regulated power utility
Victor Dvortsov and Ken Dragoon present an analytical method for including market and operational risks when estimating utility portfolio value-at-risk
Crossing the frontier
Portfolio risk management