The identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.

learn more… | top users | synonyms

7
votes
1answer
160 views

When did volatilities start to smile in capital markets?

Glimpsing through literature, I read that volatilities in the equity market started to display a smile after the crash in 1987. But when did volatilities start to smile in capital markets?
7
votes
1answer
318 views

Consistency of economic scenarios in nested stochastics simulation

I am interested in references on research regarding the consistency of economic scenarios in nested stochastics for risk measurement. Background: Pricing by Monte-Carlo: For pricing complex ...
0
votes
1answer
23 views

How to effectively hedge a Fixed-Term deal in a foreign currency?

Assume my firm is based in USD and agrees with some counterparty to buy, at time $T$, some quantity $Q$ of asset $A$ for a fixed price $K$. Assume also that $A$ prices and $K$ are denominated in EUR. ...
0
votes
1answer
162 views

How to projectP&L or drawdowns on pair trading , trading and portfolios?

This is for planning and risk management. I am stuck on the following thoughts - Back-test the trading strategy for a period similar to the one you expect and then project. Do the above using ...
-1
votes
1answer
75 views

conservative approach payoff table

With the conservative approach, we choose the decision which maximises minimum payoff. I was wondering which decision is chosen if 2 decisions have equal minimum payoff (which is the maximum)? ...
-1
votes
1answer
79 views

Math basics of Equally-weighted Risk contributions

i'm writing my BA Thesis about "Equally-weighted Risk contributions". Can anyone recommend math books for further understanding of Risk contributions?
-3
votes
1answer
154 views

What's the disadvantage of ARMA-GARCH model?

I want to ask why ARMA-GARCH is more and more popolar, and what's the advantage of this model.
6
votes
0answers
498 views

Examples of Spectral Risk Measures

Let's take the usual definition of a spectral risk measure. If we look at the integral we see that spectral risk measures have the property that the risk measure of a random variable $X$ can be ...
2
votes
0answers
50 views

Modified duration in multi-currency portfolio

I was thinking about how to figure aut duration for portfolio of bonds denominated in different currencies… I would like to compare sensitivity of portfolio to shift of yield with competitive ...
2
votes
0answers
69 views

Empirical distribution function of overlapping time series data

If we model asset return volatility for periods of more than one (say more than one day) there is the square-root rule which holds true under some assumptions. The situation is more tricky if we look ...
2
votes
0answers
75 views

Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
2
votes
0answers
144 views

Quantitative risk management strategy for a large participant in an illiquid market

Are there any practical quantitative risk management strategies for a large participant in an illiquid market with a few dominant players? By a large partcipant I mean someone who has significant ...
1
vote
0answers
47 views

How to calculate global exposure via commitment approach for FX swaps?

How would you calculate global exposure for FX swaps using the commitment approach? In particular, would you take into account both legs? CESR guidelines (CESR/10-788) defines that the exposure for ...
1
vote
0answers
62 views

Fixed Income risk attribution in the historical simulation of a sovereign bond portfolio

We use historical simulation for risk analysis. I.e. for each bond there is a repricing of the form $$ P_j = PV(\text{yield curve in scenario } j), $$ where the yield curve is the zero rates curve of ...
1
vote
0answers
98 views

Risk measures, Risk Management and Financial Risk Area

I'm currently searching material about market risk and I learned about coherent risk measures, VaR, CVaR (or expected shortfall), volatility. All that because I have to make a Financial Risk Area for ...
1
vote
0answers
17 views

Standard errors clustered along the time dimension in pooled panel logit model

I'm trying to estimate a logit model on pooled panel data set (unit of observation is firm-year). My dependant variable is default indicator and I have several macro variables as independant ...
1
vote
0answers
33 views

Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such ...
1
vote
0answers
47 views

proper choice of risk aversion parameter in the risk-sensitive cost-criterion

Suppose I want to minimize certain risk sensitive cost. Is it a valid question to ask what is the proper (also in which sense) choice of risk aversion parameter in the risk-sensitive cost-criterion ? ...
1
vote
0answers
171 views

regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
1
vote
0answers
89 views

How to show that the risk contribution function is or is not injective?

Assume a portoflio $w \in \mathbb{R}^n$, you can get the total risk contribution $\psi_i$ of asset $i$ by doing: $$\psi_i = w_i \frac{\partial \sigma(w)}{\partial w_i}= \frac{1}{\sigma(w)} \left[ ...
1
vote
0answers
163 views

Market Exposure and Hedging

Normally the Market exposure associated with your stock/portfolio is your delta for that stock/ portfolio. Basic idea of hedging involved here is buying/selling respective futures depending upon ...
0
votes
0answers
21 views

Hypothetical actuary working with a life company

If you are an actuary with a life company, how would you show that your capital assessment complies with the rules of Solvency II (or related regulations) that stipulate the minimum of capital that ...
0
votes
0answers
24 views

Difference between Risk avoidance and Risk transfer

I was hoping some could explain the two terms namely, risk avoidance and risk transfer. Also, can a risk be avoided by transferring it?
0
votes
0answers
48 views

continuous dividend yield - european option

Can someone help with following task? You need to use a 5-period forward binomial model to price options, which is constructed by specifying the up and down moves as follows: u = exp {(r − δ) · h + ...
0
votes
0answers
31 views

Invoice Discount pricing model

I was wondering whether there exist pricing models in particular for Invoice Discounting contracts and short-term financing solution where credit risk plays a major role. Specifically, assuming that ...
0
votes
0answers
67 views

Create Markets Bubble Indicator

I am trying to replicate a Bubble Indicator described here. The indicator is strictly based on calculating the regularity of price behavior to determine herding in multiple time frames. I tried the ...
0
votes
0answers
27 views

Solvency Problem for Financial Institutions

According to my finance lecture, the motivation for risk measures is grounded in the solvency problem: Risk measures are used to determine the amount of capital to avoid insolvency of the financial ...
0
votes
0answers
55 views

risk report factor exposures calculations

I am looking at a risk report which I have inherited. There are 5 lines of code that I want to make sure I understand. The risk report breaks down the exposures, contribution to variance and marginal ...
0
votes
0answers
6 views

Institutional compliance : is reference data available via the browser?

That is, assuming one has the correct accounts and credentials, is it possible to access reference data (counterparty, trading, and other categories of related meta-data) over the web? The reason I ...
0
votes
0answers
60 views

At what point does it make sense to start using a system?

This is an issue I've been struggling with for quite a while, and haven't found a satisfactory answer yet. The basic problem is this: Lets say you set up a black box system which gives you anywhere ...
0
votes
0answers
63 views

Minimum PD under Basel II retail asset?

I have been told that under Basel II the minimum PD that one can assign to any portfolio/segment classified under the retail asset class is 0.33%. But Google searches return nothing and I can't seem ...