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4,200 | A Stochastic Processes Toolkit for Risk Management | q-fin.RM | In risk management it is desirable to grasp the essential statistical
features of a time series representing a risk factor. This tutorial aims to
introduce a number of different stochastic processes that can help in grasping
the essential features of risk factors describing different asset classes or
behaviors. This pa... | finance |
4,201 | Partial Equilibria with Convex Capital Requirements: Existence, Uniqueness and Stability | q-fin.RM | In an incomplete semimartingale model of a financial market, we consider
several risk-averse financial agents who negotiate the price of a bundle of
contingent claims. Assuming that the agents' risk preferences are modelled by
convex capital requirements, we define and analyze their demand functions and
propose a notio... | finance |
4,202 | Monitoring dates of maximal risk | q-fin.RM | Monitoring means to observe a system for any changes which may occur over
time, using a monitor or measuring device of some sort. In this paper we
formulate a problem of monitoring dates of maximal risk of a financial
position. Thus, the systems we are going to observe arise from situations in
finance. The measuring de... | finance |
4,203 | The Structural Modelling of Operational Risk via Bayesian inference: Combining Loss Data with Expert Opinions | q-fin.RM | To meet the Basel II regulatory requirements for the Advanced Measurement
Approaches, the bank's internal model must include the use of internal data,
relevant external data, scenario analysis and factors reflecting the business
environment and internal control systems. Quantification of operational risk
cannot be base... | finance |
4,204 | Estimation of Operational Risk Capital Charge under Parameter Uncertainty | q-fin.RM | Many banks adopt the Loss Distribution Approach to quantify the operational
risk capital charge under Basel II requirements. It is common practice to
estimate the capital charge using the 0.999 quantile of the annual loss
distribution, calculated using point estimators of the frequency and severity
distribution paramet... | finance |
4,205 | A "Toy" Model for Operational Risk Quantification using Credibility Theory | q-fin.RM | To meet the Basel II regulatory requirements for the Advanced Measurement
Approaches in operational risk, the bank's internal model should make use of
the internal data, relevant external data, scenario analysis and factors
reflecting the business environment and internal control systems. One of the
unresolved challeng... | finance |
4,206 | Implementing Loss Distribution Approach for Operational Risk | q-fin.RM | To quantify the operational risk capital charge under the current regulatory
framework for banking supervision, referred to as Basel II, many banks adopt
the Loss Distribution Approach. There are many modeling issues that should be
resolved to use the approach in practice. In this paper we review the
quantitative metho... | finance |
4,207 | Collective firm bankruptcies and phase transition in rating dynamics | q-fin.RM | We present a simple model of firm rating evolution. We consider two sources
of defaults: individual dynamics of economic development and Potts-like
interactions between firms. We show that such a defined model leads to phase
transition, which results in collective defaults. The existence of the
collective phase depends... | finance |
4,208 | Conditional Value-at-Risk Constraint and Loss Aversion Utility Functions | q-fin.RM | We provide an economic interpretation of the practice consisting in
incorporating risk measures as constraints in a classic expected return
maximization problem. For what we call the infimum of expectations class of
risk measures, we show that if the decision maker (DM) maximizes the
expectation of a random return unde... | finance |
4,209 | A Bayesian Networks Approach to Operational Risk | q-fin.RM | A system for Operational Risk management based on the computational paradigm
of Bayesian Networks is presented. The algorithm allows the construction of a
Bayesian Network targeted for each bank using only internal loss data, and
takes into account in a simple and realistic way the correlations among
different processe... | finance |
4,210 | Preferences Yielding the "Precautionary Effect" | q-fin.RM | Consider an agent taking two successive decisions to maximize his expected
utility under uncertainty. After his first decision, a signal is revealed that
provides information about the state of nature. The observation of the signal
allows the decision-maker to revise his prior and the second decision is taken
according... | finance |
4,211 | Les Générateurs de Scénarios Économiques : quelle utilisation en assurance? | q-fin.RM | In this paper, we present the principal components of an economic scenario
generator (ESG), both for the theoretical design and for practical
implementation. The choice of these components should be linked to the ultimate
vocation of the economic scenario generator, which can be either a tool for
pricing financial prod... | finance |
4,212 | Allocation d'actifs selon le critère de maximisation des fonds propres économiques en assurance non-vie | q-fin.RM | The economic equities maximization criterion (MFPE) leads to the choice of
financial portfolio, which maximizes the ratio of the expected value of the
insurance company on the capital. This criterion is presented in the framework
of a non-life insurance company and is applied within the framework of the
French legislat... | finance |
4,213 | Mesure des risques de marché et de souscription vie en situation d'information incomplète pour un portefeuille de prévoyance | q-fin.RM | In the framework of Embedded Value new standards, namely the MCEV norms, the
latest principles published in June 2008 address the issue of market and
underwriting risks measurement by using stochastic models of projection and
valorization. Knowing that stochastic models particularly data-consuming, the
question which c... | finance |
4,214 | Optimal Reversible Annuities to Minimize the Probability of Lifetime Ruin | q-fin.RM | We find the minimum probability of lifetime ruin of an investor who can
invest in a market with a risky and a riskless asset and who can purchase a
reversible life annuity. The surrender charge of a life annuity is a proportion
of its value. Ruin occurs when the total of the value of the risky and riskless
assets and t... | finance |
4,215 | The two defaults scenario for stressing credit portfolio loss distributions | q-fin.RM | The impact of a stress scenario of default events on the loss distribution of
a credit portfolio can be assessed by determining the loss distribution
conditional on these events. While it is conceptually easy to estimate loss
distributions conditional on default events by means of Monte Carlo simulation,
it becomes imp... | finance |
4,216 | Tracking errors from discrete hedging in exponential Lévy models | q-fin.RM | We analyze the errors arising from discrete readjustment of the hedging
portfolio when hedging options in exponential Levy models, and establish the
rate at which the expected squared error goes to zero when the readjustment
frequency increases. We compare the quadratic hedging strategy with the common
market practice ... | finance |
4,217 | Multivariate heavy-tailed models for Value-at-Risk estimation | q-fin.RM | For purposes of Value-at-Risk estimation, we consider several multivariate
families of heavy-tailed distributions, which can be seen as multidimensional
versions of Paretian stable and Student's t distributions allowing different
marginals to have different tail thickness. After a discussion of relevant
estimation and ... | finance |
4,218 | Recent progress in random metric theory and its applications to conditional risk measures | q-fin.RM | The purpose of this paper is to give a selective survey on recent progress in
random metric theory and its applications to conditional risk measures. This
paper includes eight sections. Section 1 is a longer introduction, which gives
a brief introduction to random metric theory, risk measures and conditional
risk measu... | finance |
4,219 | A Loan Portfolio Model Subject to Random Liabilities and Systemic Jump Risk | q-fin.RM | We extend the Vasi\v{c}ek loan portfolio model to a setting where liabilities
fluctuate randomly and asset values may be subject to systemic jump risk. We
derive the probability distribution of the percentage loss of a uniform
portfolio and analyze its properties. We find that the impact of liability risk
is ambiguous ... | finance |
4,220 | Alarm System for Insurance Companies: A Strategy for Capital Allocation | q-fin.RM | One possible way of risk management for an insurance company is to develop an
early and appropriate alarm system before the possible ruin. The ruin is
defined through the status of the aggregate risk process, which in turn is
determined by premium accumulation as well as claim settlement outgo for the
insurance company... | finance |
4,221 | A Dynamical Model for Forecasting Operational Losses | q-fin.RM | A novel dynamical model for the study of operational risk in banks and
suitable for the calculation of the Value at Risk (VaR) is proposed. The
equation of motion takes into account the interactions among different bank's
processes, the spontaneous generation of losses via a noise term and the
efforts made by the bank ... | finance |
4,222 | Target market risk evaluation | q-fin.RM | After the shocking series of bankruptcies started in 2008, the public does
not trust anymore the classical methods of assessing business risks. The global
economic severe downturn caused demand for both developed and emerging
economies' exports to drop and the crisis became truly global. However, this
current crisis of... | finance |
4,223 | Liquidity-adjusted Market Risk Measures with Stochastic Holding Period | q-fin.RM | Within the context of risk integration, we introduce in risk measurement
stochastic holding period (SHP) models. This is done in order to obtain a
`liquidity-adjusted risk measure' characterized by the absence of a fixed time
horizon. The underlying assumption is that - due to changes on market liquidity
conditions - o... | finance |
4,224 | Capital allocation for credit portfolios under normal and stressed market conditions | q-fin.RM | If the probability of default parameters (PDs) fed as input into a credit
portfolio model are estimated as through-the-cycle (TTC) PDs stressed market
conditions have little impact on the results of the capital calculations
conducted with the model. At first glance, this is totally different if the PDs
are estimated as... | finance |
4,225 | Quantile hedging for basket derivatives | q-fin.RM | The problem of quantile hedging for basket derivatives in the Black-Scholes
model with correlation is considered. Explicit formulas for the probability
maximizing function and the cost reduction function are derived. Applicability
of the results for the widely traded derivatives as digital, quantos,
outperformance and ... | finance |
4,226 | Markov chain Monte Carlo estimation of default and recovery: dependent via the latent systematic factor | q-fin.RM | It is a well known fact that recovery rates tend to go down when the number
of defaults goes up in economic downturns. We demonstrate how the loss given
default model with the default and recovery dependent via the latent systematic
risk factor can be estimated using Bayesian inference methodology and Markov
chain Mont... | finance |
4,227 | Set-valued risk measures for conical market models | q-fin.RM | Set-valued risk measures on $L^p_d$ with $0 \leq p \leq \infty$ for conical
market models are defined, primal and dual representation results are given.
The collection of initial endowments which allow to super-hedge a multivariate
claim are shown to form the values of a set-valued sublinear (coherent) risk
measure. Sc... | finance |
4,228 | An Active Margin System and its Application in Chinese Margin Lending Market | q-fin.RM | In order to protect brokers from customer defaults in a volatile market, an
active margin system is proposed for the transactions of margin lending in
China. The probability of negative return under the condition that collaterals
are liquidated in a falling market is used to measure the risk associated with
margin loan... | finance |
4,229 | Dependence of defaults and recoveries in structural credit risk models | q-fin.RM | The current research on credit risk is primarily focused on modeling default
probabilities. Recovery rates are often treated as an afterthought; they are
modeled independently, in many cases they are even assumed constant. This is
despite of their pronounced effect on the tail of the loss distribution. Here,
we take a ... | finance |
4,230 | A Random Matrix Approach to Credit Risk | q-fin.RM | We estimate generic statistical properties of a structural credit risk model
by considering an ensemble of correlation matrices. This ensemble is set up by
Random Matrix Theory. We demonstrate analytically that the presence of
correlations severely limits the effect of diversification in a credit
portfolio if the corre... | finance |
4,231 | Portfolio Insurance under a risk-measure constraint | q-fin.RM | We study the problem of portfolio insurance from the point of view of a fund
manager, who guarantees to the investor that the portfolio value at maturity
will be above a fixed threshold. If, at maturity, the portfolio value is below
the guaranteed level, a third party will refund the investor up to the
guarantee. In ex... | finance |
4,232 | Calibration of structural and reduced-form recovery models | q-fin.RM | In recent years research on credit risk modelling has mainly focused on
default probabilities. Recovery rates are usually modelled independently, quite
often they are even assumed constant. Then, however, the structural connection
between recovery rates and default probabilities is lost and the tails of the
loss distri... | finance |
4,233 | The dynamics of financial stability in complex networks | q-fin.RM | We address the problem of banking system resilience by applying
off-equilibrium statistical physics to a system of particles, representing the
economic agents, modelled according to the theoretical foundation of the
current banking regulation, the so called Merton-Vasicek model. Economic agents
are attracted to each ot... | finance |
4,234 | Spectral Risk Measures: Properties and Limitations | q-fin.RM | Spectral risk measures (SRMs) are risk measures that take account of user
riskaversion, but to date there has been little guidance on the choice of
utility function underlying them. This paper addresses this issue by examining
alternative approaches based on exponential and power utility functions. A
number of problems... | finance |
4,235 | Extreme Measures of Agricultural Financial Risk | q-fin.RM | Risk is an inherent feature of agricultural production and marketing and
accurate measurement of it helps inform more efficient use of resources. This
paper examines three tail quantile-based risk measures applied to the
estimation of extreme agricultural financial risk for corn and soybean
production in the US: Value ... | finance |
4,236 | Concave Distortion Semigroups | q-fin.RM | The problem behind this paper is the proper measurement of the degree of
quality/acceptability/distance to arbitrage of trades. We are narrowing the
class of coherent acceptability indices introduced by Cherny and Madan (2007)
by imposing an additional mathematical property. For this, we introduce the
notion of a conca... | finance |
4,237 | Banking retail consumer finance data generator - credit scoring data repository | q-fin.RM | This paper presents two cases of random banking data generators based on
migration matrices and scoring rules. The banking data generator is a new hope
in researches of finding the proving method of comparisons of various credit
scoring techniques. There is analyzed the influence of one cyclic
macro--economic variable ... | finance |
4,238 | A Stochastic Model for the Analysis of Demographic Risk in Pay-As-You-Go Pension Funds | q-fin.RM | This research presents an analysis of the demographic risk related to future
membership patterns in pension funds with restricted entrance, financed under a
pay-as-you-go scheme. The paper, therefore, proposes a stochastic model for
investigating the behaviour of the demographic variable "new entrants" and the
influenc... | finance |
4,239 | One-year reserve risk including a tail factor: closed formula and bootstrap approaches | q-fin.RM | In this paper, we detail the main simulation methods used in practice to
measure one-year reserve risk, and describe the bootstrap method providing an
empirical distribution of the Claims Development Result (CDR) whose variance is
identical to the closed-form expression of the prediction error proposed by
W\"uthrich et... | finance |
4,240 | Quantifying mortality risk in small defined-benefit pension schemes | q-fin.RM | A risk of small defined-benefit pension schemes is that there are too few
members to eliminate idiosyncratic mortality risk, that is there are too few
members to effectively pool mortality risk. This means that when there are few
members in the scheme, there is an increased risk of the liability value
deviating signifi... | finance |
4,241 | Losing money with a high Sharpe ratio | q-fin.RM | A simple example shows that losing all money is compatible with a very high
Sharpe ratio (as computed after losing all money). However, the only way that
the Sharpe ratio can be high while losing money is that there is a period in
which all or almost all money is lost. This note explores the best achievable
Sharpe and ... | finance |
4,242 | Hedging strategies with a put option and their failure rates | q-fin.RM | The problem of stock hedging is reconsidered in this paper, where a put
option is chosen from a set of available put options to hedge the market risk
of a stock. A formula is proposed to determine the probability that the
potential loss exceeds a predetermined level of Value-at-Risk, which is used to
find the optimal s... | finance |
4,243 | Menger 1934 revisited | q-fin.RM | Karl Menger's 1934 paper on the St. Petersburg paradox contains mathematical
errors that invalidate his conclusion that unbounded utility functions,
specifically Bernoulli's logarithmic utility, fail to resolve modified versions
of the St. Petersburg paradox. | finance |
4,244 | Historical risk measures on stock market indices and energy markets | q-fin.RM | In this paper we look at the efficacy of different risk measures on energy
markets and across several different stock market indices. We use both the
Value at Risk and the Tail Conditional Expectation on each of these data sets.
We also consider several different durations and levels for historical risk
measures. Throu... | finance |
4,245 | A Mathematical Method for Deriving the Relative Effect of Serviceability on Default Risk | q-fin.RM | The writers propose a mathematical Method for deriving risk weights which
describe how a borrower's income, relative to their debt service obligations
(serviceability) affects the probability of default of the loan.
The Method considers the borrower's income not simply as a known quantity at
the time the loan is made... | finance |
4,246 | Restructuring Counterparty Credit Risk | q-fin.RM | We introduce an innovative theoretical framework to model derivative
transactions between defaultable entities based on the principle of arbitrage
freedom. Our framework extends the traditional formulations based on Credit and
Debit Valuation Adjustments (CVA and DVA). Depending on how the default
contingency is accoun... | finance |
4,247 | Bayesian estimation of probabilities of default for low default portfolios | q-fin.RM | The estimation of probabilities of default (PDs) for low default portfolios
by means of upper confidence bounds is a well established procedure in many
financial institutions. However, there are often discussions within the
institutions or between institutions and supervisors about which confidence
level to use for the... | finance |
4,248 | Real Output Costs of Financial Crises: A Loss Distribution Approach | q-fin.RM | We study cross-country GDP losses due to financial crises in terms of
frequency (number of loss events per period) and severity (loss per
occurrence). We perform the Loss Distribution Approach (LDA) to estimate a
multi-country aggregate GDP loss probability density function and the
percentiles associated to extreme eve... | finance |
4,249 | Time consistency of dynamic risk measures in markets with transaction costs | q-fin.RM | The paper concerns primal and dual representations as well as time
consistency of set-valued dynamic risk measures. Set-valued risk measures
appear naturally when markets with transaction costs are considered and capital
requirements can be made in a basket of currencies or assets. Time consistency
of scalar risk measu... | finance |
4,250 | A Dynamical Approach to Operational Risk Measurement | q-fin.RM | We propose a dynamical model for the estimation of Operational Risk in
banking institutions. Operational Risk is the risk that a financial loss occurs
as the result of failed processes. Examples of operational losses are the ones
generated by internal frauds, human errors or failed transactions. In order to
encompass t... | finance |
4,251 | Derivatives and Credit Contagion in Interconnected Networks | q-fin.RM | The importance of adequately modeling credit risk has once again been
highlighted in the recent financial crisis. Defaults tend to cluster around
times of economic stress due to poor macro-economic conditions, {\em but also}
by directly triggering each other through contagion. Although credit default
swaps have radical... | finance |
4,252 | Active margin system for margin loans and its application in Chinese market: using cash and randomly selected stock as collateral | q-fin.RM | An active margin system for margin loans is proposed for Chinese margin
lending market, which uses cash and randomly selected stock as collateral. The
conditional probability of negative return(CPNR) after a forced sale of
securities from under-margined account in a falling market is used to measure
the risk faced by t... | finance |
4,253 | Active margin system for margin loans using cash and stock as collateral and its application in Chinese market | q-fin.RM | Margin system for margin loans using cash and stock as collateral is
considered in this paper, which is the line of defence for brokers against risk
associated with margin trading. The conditional probability of negative return
is used as risk measure, and a recursive algorithm is proposed to realize this
measure under... | finance |
4,254 | Using Decision Tree Learner to Classify Solvency Position for Thai Non-life Insurance Companies | q-fin.RM | This paper introduces a Decision Tree Learner as an early warning system for
classification of the non-life insurance companies according to their financial
solid as strong, moderate, weak, or insolvency. In this study, we ran several
experiments to show that the proposed model can achieve a good result using
standard ... | finance |
4,255 | Empirical Evidence for the Structural Recovery Model | q-fin.RM | While defaults are rare events, losses can be substantial even for credit
portfolios with a large number of contracts. Therefore, not only a good
evaluation of the probability of default is crucial, but also the severity of
losses needs to be estimated. The recovery rate is often modeled independently
with regard to th... | finance |
4,256 | Ordinal Classification Method for the Evaluation Of Thai Non-life Insurance Companies | q-fin.RM | This paper proposes a use of an ordinal classifier to evaluate the financial
solidity of non-life insurance companies as strong, moderate, weak, and
insolvency. This study constructed an efficient classification model that can
be used by regulators to evaluate the financial solidity and to determine the
priority of fur... | finance |
4,257 | Systemic losses in banking networks: indirect interaction of nodes via asset prices | q-fin.RM | A simple banking network model is proposed which features multiple waves of
bank defaults and is analytically solvable in the limiting case of an
infinitely large homogeneous network. The model is a collection of nodes
representing individual banks; associated with each node is a balance sheet
consisting of assets and ... | finance |
4,258 | From Risk Measures to Research Measures | q-fin.RM | In order to evaluate the quality of the scientific research, we introduce a
new family of scientific performance measures, called Scientific Research
Measures (SRM). Our proposal originates from the more recent developments in
the theory of risk measures and is an attempt to resolve the many problems of
the existing bi... | finance |
4,259 | Optimal retirement consumption with a stochastic force of mortality | q-fin.RM | We extend the lifecycle model (LCM) of consumption over a random horizon
(a.k.a. the Yaari model) to a world in which (i.) the force of mortality obeys
a diffusion process as opposed to being deterministic, and (ii.) a consumer can
adapt their consumption strategy to new information about their mortality rate
(a.k.a. h... | finance |
4,260 | A different perspective on retirement income sustainability: the blueprint for a ruin contingent life annuity (RCLA) | q-fin.RM | The purpose of this article is twofold. First, we motivate the need for a new
type of stand-alone retirement income insurance product that would help
individuals protect against personal longevity risk and possible "retirement
ruin" in an economically efficient manner. We label this product a
ruin-contingent life annui... | finance |
4,261 | Beyond cash-additive risk measures: when changing the numéraire fails | q-fin.RM | We discuss risk measures representing the minimum amount of capital a
financial institution needs to raise and invest in a pre-specified eligible
asset to ensure it is adequately capitalized. Most of the literature has
focused on cash-additive risk measures, for which the eligible asset is a
risk-free bond, on the grou... | finance |
4,262 | Forecasting Value-at-Risk with Time-Varying Variance, Skewness and Kurtosis in an Exponential Weighted Moving Average Framework | q-fin.RM | This paper provides an insight to the time-varying dynamics of the shape of
the distribution of financial return series by proposing an exponential
weighted moving average model that jointly estimates volatility, skewness and
kurtosis over time using a modified form of the Gram-Charlier density in which
skewness and ku... | finance |
4,263 | Interest Rate Risk of Bond Prices on Macedonian Stock Exchange - Empirical Test of the Duration, Modified Duration and Convexity and Bonds Valuation | q-fin.RM | This article presents valuation of Treasury Bonds (T-Bonds) on Macedonian
Stock Exchange (MSE) and empirical test of duration, modified duration and
convexity of the T-bonds at MSE in order to determine sensitivity of bonds
prices on interest rate changes. The main goal of this study is to determine
how standard valuat... | finance |
4,264 | A Dynamical Model for Operational Risk in Banks | q-fin.RM | Operational risk is the risk relative to monetary losses caused by failures
of bank internal processes due to heterogeneous causes. A dynamical model
including both spontaneous generation of losses and generation via interactions
between different processes is presented; the efforts made by the bank to avoid
the occurr... | finance |
4,265 | Mathematical Definition, Mapping, and Detection of (Anti)Fragility | q-fin.RM | We provide a mathematical definition of fragility and antifragility as
negative or positive sensitivity to a semi-measure of dispersion and volatility
(a variant of negative or positive "vega") and examine the link to nonlinear
effects. We integrate model error (and biases) into the fragile or antifragile
context. Unli... | finance |
4,266 | Hedging Swing contract on gas markets | q-fin.RM | Swing options on the gas market are american style option where daily
quantities exercices are constrained and global quantities exerciced each year
constrained too. The option holder has to decide each day how much he consumes
of the quantities satisfying the constraints and tries to use a strategy in
order to maximiz... | finance |
4,267 | Scenarios and their Aggregation in the Regulatory Risk Measurement Environment | q-fin.RM | We define scenarios, propose different methods of aggregating them, discuss
their properties and benchmark them against quadrant requirements. | finance |
4,268 | Funding Liquidity, Debt Tenor Structure, and Creditor's Belief: An Exogenous Dynamic Debt Run Model | q-fin.RM | We propose a unified structural credit risk model incorporating both
insolvency and illiquidity risks, in order to investigate how a firm's default
probability depends on the liquidity risk associated with its financing
structure. We assume the firm finances its risky assets by mainly issuing
short- and long-term debt.... | finance |
4,269 | Fostering Project Scheduling and Controlling Risk Management | q-fin.RM | Deployment of emerging technologies and rapid change in industries has
created a lot of risk for initiating the new projects. Many techniques and
suggestions have been introduced but still lack the gap from various
prospective. This paper proposes a reliable project scheduling approach. The
objectives of project schedu... | finance |
4,270 | Russian interbank networks: main characteristics and stability with respect to contagion | q-fin.RM | Systemic risks characterizing the Russian overnight interbank market from the
network point of view are analyzed. | finance |
4,271 | Measuring and Analysing Marginal Systemic Risk Contribution using CoVaR: A Copula Approach | q-fin.RM | This paper is devoted to the quantification and analysis of marginal risk
contribution of a given single financial institution i to the risk of a
financial system s. Our work expands on the CoVaR concept proposed by Adrian
and Brunnermeier as a tool for the measurement of marginal systemic risk
contribution. We first g... | finance |
4,272 | Solvency assessment within the ORSA framework: issues and quantitative methodologies | q-fin.RM | The implementation of the Own Risk and Solvency Assessment is a critical
issue raised by Pillar II of Solvency II framework. In particular the Overall
Solvency Needs calculation left the Insurance companies to define an optimal
entity-specific solvency constraint on a multi-year time horizon. In a life
insurance societ... | finance |
4,273 | The role of the Model Validation function to manage and mitigate model risk | q-fin.RM | This paper describes the current taxonomy of model risk, ways for its
mitigation and management and the importance of the model validation function
in collaboration with other departments to design and implement them. | finance |
4,274 | Optimal portfolio for a robust financial system | q-fin.RM | This study presents an ANWSER model (asset network systemic risk model) to
quantify the risk of financial contagion which manifests itself in a financial
crisis. The transmission of financial distress is governed by a heterogeneous
bank credit network and an investment portfolio of banks. Bankruptcy
reproductive ratio ... | finance |
4,275 | Optimal portfolio model based on WVAR | q-fin.RM | This article is focused on using a new measurement of risk-- Weighted Value
at Risk to develop a new method of constructing initiate from the TVAR solving
problem, based on MATLAB software, using the historical simulation method
(avoiding income distribution will be assumed to be normal), the results of
previous studie... | finance |
4,276 | Parameter estimation of a Levy copula of a discretely observed bivariate compound Poisson process with an application to operational risk modelling | q-fin.RM | A method is developed to estimate the parameters of a Levy copula of a
discretely observed bivariate compound Poisson process without knowledge of
common shocks. The method is tested in a small sample simulation study. Also,
the method is applied to a real data set and a goodness of fit test is
developed. With the meth... | finance |
4,277 | Risk Measures in a Regime Switching Model Capturing Stylized Facts | q-fin.RM | We pick up the regime switching model for asset returns introduced by Rogers
and Zhang. The calibration involves various markets including implied
volatility in order to gain additional predictive power. We focus on the
calculation of risk measures by Fourier methods that have successfully been
applied to option pricin... | finance |
4,278 | Multiportfolio time consistency for set-valued convex and coherent risk measures | q-fin.RM | Equivalent characterizations of multiportfolio time consistency are deduced
for closed convex and coherent set-valued risk measures on $L^p(\Omega,\mathcal
F, P; R^d)$ with image space in the power set of $L^p(\Omega,\mathcal
F_t,P;R^d)$. In the convex case, multiportfolio time consistency is equivalent
to a cocycle co... | finance |
4,279 | The Foster-Hart Measure of Riskiness for General Gambles | q-fin.RM | Foster and Hart proposed an operational measure of riskiness for discrete
random variables. We show that their defining equation has no solution for many
common continuous distributions including many uniform distributions, e.g. We
show how to extend consistently the definition of riskiness to continuous
random variabl... | finance |
4,280 | A new approach for an unitary risk theory | q-fin.RM | The work deals with the risk assessment theory. An unitary risk algorithm is
elaborated. The algorithm is based on parallel curves. The basic curve of risk
is a hyperbolic curve, obtained as a multiplication between the probability of
occurrence of certain event and its impact. Section 1 contains the problem
formulatio... | finance |
4,281 | Quantifying the Impact of Leveraging and Diversification on Systemic Risk | q-fin.RM | Excessive leverage, i.e. the abuse of debt financing, is considered one of
the primary factors in the default of financial institutions. Systemic risk
results from correlations between individual default probabilities that cannot
be considered independent. Based on the structural framework by Merton (1974),
we discuss ... | finance |
4,282 | Premiums And Reserves, Adjusted By Distortions | q-fin.RM | The net-premium principle is considered to be the most genuine and fair
premium principle in actuarial applications. However, an insurance company,
applying the net-premium principle, goes bankrupt with probability one in the
long run, even if the company covers its entire costs by collecting the
respective fees from i... | finance |
4,283 | Measuring the default risk of sovereign debt from the perspective of network | q-fin.RM | Recently, there has been a growing interest in network research, especially
in these fields of biology, computer science, and sociology. It is natural to
address complex financial issues such as the European sovereign debt crisis
from the perspective of network. In this article, we construct a network model
according t... | finance |
4,284 | Central Clearing of OTC Derivatives: bilateral vs multilateral netting | q-fin.RM | We study the impact of central clearing of over-the-counter (OTC)
transactions on counterparty exposures in a market with OTC transactions across
several asset classes with heterogeneous characteristics. The impact of
introducing a central counterparty (CCP) on expected interdealer exposure is
determined by the tradeof... | finance |
4,285 | Mean-Variance Asset-Liability Management with State-Dependent Risk Aversion | q-fin.RM | In this paper, we consider the asset-liability management under the
mean-variance criterion. The financial market consists of a risk-free bond and
a stock whose price process is modeled by a geometric Brownian motion. The
liability of the investor is uncontrollable and is modeled by another geometric
Brownian motion. W... | finance |
4,286 | A comparison of techniques for dynamic multivariate risk measures | q-fin.RM | This paper contains an overview of results for dynamic multivariate risk
measures. We provide the main results of four different approaches. We will
prove under which assumptions results within these approaches coincide, and how
properties like primal and dual representation and time consistency in the
different approa... | finance |
4,287 | Consistent iterated simulation of multi-variate default times: a Markovian indicators characterization | q-fin.RM | We investigate under which conditions a single simulation of joint default
times at a final time horizon can be decomposed into a set of simulations of
joint defaults on subsequent adjacent sub-periods leading to that final
horizon. Besides the theoretical interest, this is also a practical problem as
part of the indus... | finance |
4,288 | A Financial Risk Analysis: Does the 2008 Financial Crisis Give Impact on Weekends Returns of the U.S. Movie Box Office? | q-fin.RM | The Financial Crisis of 2008 is a worldwide financial crisis causing a
worldwide economic decline that is the most severe since the 1930s. According
to the International Monetary Fund (IMF), the global financial crisis gave
impact on USD 3.4 trillion losses from financial institutions around the world
between 2007 and ... | finance |
4,289 | Ruin probability of a discrete-time risk process with proportional reinsurance and investment for exponential and Pareto distributions | q-fin.RM | In this paper a quantitative analysis of the ruin probability in finite time
of discrete risk process with proportional reinsurance and investment of
finance surplus is focused on. It is assumed that the total loss on a unit
interval has a light-tailed distribution -- exponential distribution and a
heavy-tailed distrib... | finance |
4,290 | Computational Dynamic Market Risk Measures in Discrete Time Setting | q-fin.RM | Different approaches to defining dynamic market risk measures are available
in the literature. Most are focused or derived from probability theory,
economic behavior or dynamic programming. Here, we propose an approach to
define and implement dynamic market risk measures based on recursion and state
economy representat... | finance |
4,291 | The Meaning of Probability of Default for Asset-backed Loans | q-fin.RM | The authors examine the concept of probability of default for asset-backed
loans. In contrast to unsecured loans it is shown that probability of default
can be defined as either a measure of the likelihood of the borrower failing to
make required payments, or as the likelihood of an insufficiency of collateral
value on... | finance |
4,292 | Assessing Financial Model Risk | q-fin.RM | Model risk has a huge impact on any risk measurement procedure and its
quantification is therefore a crucial step. In this paper, we introduce three
quantitative measures of model risk when choosing a particular reference model
within a given class: the absolute measure of model risk, the relative measure
of model risk... | finance |
4,293 | Contraction or steady state? An analysis of credit risk management in Italy in the period 2008-2012 | q-fin.RM | Credit risk management in Italy is characterized, in the period June 2008 to
June 2012, by frequent (frequency=0.5 cycles per year) and intense (peak
amplitude: mean=39.2 billion Euros, s.e.=2.83 billion Euros) quarterly
contractions and expansions around the mean (915.4 billion Euros, s.e.=3.59
billion Euros) of the n... | finance |
4,294 | Efficient immunization strategies to prevent financial contagion | q-fin.RM | Many immunization strategies have been proposed to prevent infectious viruses
from spreading through a network. In this study, we propose efficient
immunization strategies to prevent a default contagion that might occur in a
financial network. An essential difference from the previous studies on
immunization strategy i... | finance |
4,295 | Network versus portfolio structure in financial systems | q-fin.RM | The question of how to stabilize financial systems has attracted considerable
attention since the global financial crisis of 2007-2009. Recently, Beale et
al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl
Acad Sci USA 108: 12647-12652, 2011) demonstrated that higher portfolio
diversity among... | finance |
4,296 | Measuring risk with multiple eligible assets | q-fin.RM | The risk of financial positions is measured by the minimum amount of capital
to raise and invest in eligible portfolios of traded assets in order to meet a
prescribed acceptability constraint. We investigate nondegeneracy, finiteness
and continuity properties of these risk measures with respect to multiple
eligible ass... | finance |
4,297 | Analytical models of operational risk and new results on the correlation problem | q-fin.RM | We propose a portfolio approach for operational risk quantification based on
a class of analytical models from which we derive new results on the
correlation problem. In particular, we show that uniform correlation is a
robust assumption for measuring capital charges in these models. | finance |
4,298 | Credit Risk and the Instability of the Financial System: an Ensemble Approach | q-fin.RM | The instability of the financial system as experienced in recent years and in
previous periods is often linked to credit defaults, i.e., to the failure of
obligors to make promised payments. Given the large number of credit contracts,
this problem is amenable to be treated with approaches developed in statistical
physi... | finance |
4,299 | Continuous compliance: a proxy-based monitoring framework | q-fin.RM | Within the Own Risk and Solvency Assessment framework, the Solvency II
directive introduces the need for insurance undertakings to have efficient
tools enabling the companies to assess the continuous compliance with
regulatory solvency requirements. Because of the great operational complexity
resulting from each comple... | finance |
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