The possibility that a negative event (such as a loss) will happen.

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2answers
180 views

Semi-variance/Downside Risk, what about the rest of the covariance matrix?

I just bumped into a rather interesting article from wikipedia : http://en.wikipedia.org/wiki/Downside_risk where they define the semi-variance also called Downside risk, which bascially only ...
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1answer
100 views

What are the different Credit Portfolio Management models and what are their advantages?

CreditMetrics, RiskMetrics(Algorithims), etc. are all different risk methodologies used by many banks. However, what are their advantages/disadvantages? I would appreciate your replies!
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1answer
124 views

Getting Parameter of Translated Gamma Distribution from Monte Carlo

Spin-off from here. (Edit) Main question: What do I do about a parameter whose suggested values range quite vastly? (Edit) Backstory: I am given data of loss values and the dates that correspond to ...
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1answer
54 views

Compute moments of aggregate loss using Monte Carlo

Spin-off from here. Richard referred to me an article that tells me how to get parameters of a translated gamma distribution to which I should consider fitting simulated aggregated loss values. The ...
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1answer
250 views

Get distribution for aggregate loss using Monte Carlo

I am given two data sets containing dates and losses (in some currency). Given a distribution for the amount of losses and an (a,b,0) distribution for frequency of losses, how can I use Monte Carlo ...
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1answer
236 views

Which sports are generally the best for trading on betting exchanges for a profit?

I am looking at trading bets on tennis, football and horse racing in particular as these appear to have the most liquidity. How much background research and how much trial and error is generally ...
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1answer
51 views

Hedging using relative values

Consider I have two stocks $A$ and $B$, $A$ is trading at $\$40$ and $B$ at $\$30$. The standard deviation of its returns are $\sigma_A=25\%$ and $\sigma_B = 30\%$. Correlation between the returns is ...
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1answer
146 views

regarding Basel II III model

I may have to get involved in some projects using Basel II, III model for risk modeling, to which I have no background. Are there any good book/tutorials to recommend? What are the underlying ...
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1answer
597 views

Ex-Ante tracking error how to determine the look back period

I am looking to compare the ex-ante predictions against the post values. I am using a look back period of ranges from 1 year to 5 years to construct my covariance matrix that I am using for my ex-ante ...
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1answer
450 views

Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
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1answer
205 views

Downside deviation

have any practitioners here worked with the downside deviation metric? I've looked a little into its concepts but wish to know its utility in practice (if any). Does it bring any value to risk ...
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1answer
192 views

reinsurance pricing equivalent to option pricing

Is it true that pricing a reinsurance contact is equivalent to pricing an option. Basically a reinsurance just cuts off the risk exposure of the insured institution to a threshold say $K$. So if we ...
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0answers
29 views

Using a hybrid approach to calculate operational risk capital

I've read that a hybrid approach combing scenario analysis and loss distribution analysis can be used to calculate operational risk capital under the advanced models approach. I've read a couple ways ...
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0answers
47 views

Why is credit exposure higher for a smaller probability of default than for a larger default?

I'm having trouble grasping this concept; I don't see the relevance of the explanation given in the text (Gregory, Counterparty Credit Risk and CVA) either. When expected exposure and probability of ...
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0answers
54 views

Cross-sectional moments

I got a seminar topic named Forecasting risk from cross sectional moments? Could at least someone tell me what should I write about and if there is any paper that I could read. Thank you very much in ...
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0answers
64 views

GARCH filtering and extreme value theory

We are evaluating a model for risk management based on extreme value theory using peaks over threshold and markov chain monte carlo methods. In doing this, we are firstly fitting a GARCH (we have ...
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0answers
47 views

Comparing cost of two alternative given their distribution

I have distribution for cost of two alternative through Monte Carlo simulation. The distributions are not normal. Given the benefit of the two alternatives is the same but ungiven, I want to choose ...
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0answers
141 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 ...
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0answers
56 views

how to find CVaR/AVaR for triangular fuzzy no

While going through different methods of risk measure i came across AVaR/CVaR, while i was calculating AVaR/CVaR in credibilistic environment using VaR, i got stuck in the calculations eg. For ...
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0answers
38 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 ...
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0answers
52 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 ? ...
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2answers
131 views

Basis Risk for Futures/Options

I am just reading about basis risk. It is being described as risk of the price of the hedging instrument not fluctuating the same as the instrument itself. I was just wondering, if we bought a ...
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0answers
218 views

Modeling asset performance to Bitcoin revenue

I'm attempting to model asset performance to Bitcoin revenue, which is a driving force in the Bitcoin community. Question Is there any model, or research being done that tracks "hashes per second" ...
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0answers
269 views

How would I calculate a stop on a pair trade? [closed]

I have a trading strategy that I use on single tickers. I'd like to start using it with pairs as well. However, I'm somewhat math challenged and not sure how to best calculate the stops of the ...
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2answers
162 views

Sharpe Ratio and time spent in loss

Is it possible to express, given an annualized Sharpe Ratio value, what is an expected maximum/average time spent in a draw-down or something in this manner? E.g. with SR of 10, you'd expect to spend ...
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3answers
62 views

What information should be delivered to the client so they have enough information to manage their exchange rate risks? [closed]

The client can be a CFO or CEO. The information can indicators, charts, graphs, statistics, ratios, etc. I know the VaR is one of them.
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3answers
106 views

To currency hedge or not to currency hedge (ETFs)?

When is it preferable to use a currency hedged ETF over a none currency hedged ETF? There has been studies which have shown over the longer term currency hedging does not make a difference. ...
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3answers
417 views

How to create a model or formula for evaluating trade opportunities

I want to build a formula to produce a score for a potential trade based on 4 variables, time, return, liquidity of security, and probability of failure. For a set of potential trades I first ...
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1answer
51 views

What are “risk” or “risk numbers?”

I work in finance but do not have any formal education in the subject (I do have a PhD, but not in finance). I've picked up a lot of the jargon but there's one thing that I haven't figured out, and it ...
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1answer
31 views

Convex risk measure and a coherent risk measure?

A coherent risk measure is: $\rho(\lambda X_1+(1-\lambda X_2))$ How can it be shown that everey convex risk measure is indeed a coherent risk measure? I assume that it is enough to show that a ...
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2answers
49 views

What risks is an exchange exposed to?

Putting aside operational/reputational/business risks for a minute, a financial institution is concerned with the risk of losing money on their positions. What about an exchange ? I can only think of ...
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1answer
62 views

calculating portfolio volatility [closed]

Given: vector of portfolio weights $W = [w_1 w_1 ]$ correlation matrix $C = \left( \begin{array}{ccc} a & b \\ d & e \end{array} \right) $ standard deviation of the asset returns $S = [s_1 ...
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1answer
392 views

Portfolio optimzation : efficient frontier with respect to risk aversion parameter with R

I am currently trying to write a little script in R to determine the optimal weights given a fixed risk aversion parameter. The problem I have is that by increasing the risk aversion parameter I think ...
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1answer
86 views

What are good online resources for credit portfolio managers?

I am aware that this question is not the typical quant.SE question, BUT I couldn`t find any site/forum/wiki, where credit portfolio managers hang out to share their experience and their methods. ...
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1answer
135 views

What is the realized volatility's estimation error?

Given an estimation procedure and real data, how would one compute the mean squared error? What value represents the "true" realized volatility in the case of calculating the Mean Squared Error in ...
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1answer
214 views

Is the risk-reward ratio considered in Quantitative Finance?

Many discretionary traders swear by risk-reward ratio, as in "The minimum risk-reward ratio for a Forex trade is 1:2." Do quantative traders use risk-to-reward ratio as well? If so, how do you ...
0
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1answer
190 views

Asynchronous Data Across Time Zones - RiskMetrics

I'm currently involved with a project to integrate RiskMetrics into our business and one issue we've identified is the treatment of market data timing across time zones. This can have the effect of ...
0
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1answer
45 views

Is Value-at-Risk translation invariant?

Let: $X=V_1-V_0R_0$ where $R_0$ is the interest rate. Then, is it so that this risk measure is Translation Invariant as: ...
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1answer
76 views

Calculating expected shortfall

I'm trying to calculate the expected shortfall for the below scenario. I don't understand why the 1.04% probability of 0 bonds defaulting is used as a weight when calculating ES, since the binomial ...
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1answer
96 views

Why can't marginal CVA be used in pricing?

"Marginal CVA may be useful to breakdown a CVA for any number of netted trades into trade-level contributions that sum to the total CVA. Whilst it might not be used for pricing new transactions (due ...
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1answer
63 views

Expected Utility and $\log$

I've just started reading about expected utility and utility functions and have the following question. $\textbf{Question:}$ An investor has an initial wealth of 100 and a utility function of the ...
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1answer
172 views

Convert a call spread to a butterfly to mitigate risk

I do not have a source for this (apologies), but sometimes, I hear about option traders initiating a vertical spread(short) and then converting that call spread to a butterfly spread to mitigate risk. ...
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3answers
309 views

Parametric/Analytical VaR

Suppose I want to calculate VaR for a known distribution with mean $\mu$, variance $\sigma^2$ and $\alpha$-quantile as, $VaR_{\alpha}$ = $\mu + \sigma q_{\alpha}$. For a Gaussian distribution it is ...
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1answer
235 views

Factoring risk premium in to Forward Rate calculation

This is a self study question. I'm calculating a forward rate. Specifically, I have that in a country X, the Spot Rate is 5X/1US. I also have that the 1 year interest rate is 13% in country X and ...
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1answer
202 views

CAPM (SML) Problem

I got 1.3636 for beta for the problem below(165/121). But I became so unsure about the answer when I solved (c) because then the market risk becomes larger than the variance of Stock A. ...
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1answer
728 views

Directional/Non-Directional Risk

Can someone explain to me what is direction/non-directional risk? Went through few sites but couldn't understand much.
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1answer
97 views

Plain vanilla risk parity with trends forecasting power

I have built an asset allocation model (plain vanilla risk parity) but I would like to adapt the initial asset allocation with respect to potential futures changes in the trends of the assets under ...
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0answers
24 views

Credit risk terms differences:

What are the differences between these terms: Contingent Credit Exposure Exposure profiles, Settlement Exposure, Negotiable Paper Exposure. Many thanks!
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0answers
31 views

Lambda in RiskMetrics for fixed income

What is the default lambda proposed in RiskMetrics for fixed income?
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0answers
46 views

How to fit a copula to empirical data?

There are numerous types of Copulas one can choose to fit empirical data. My question is wow to select the 'best' copula to fit the data. More specifically, let's assume empirical data ...