# Tagged Questions

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

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### Non-contractual accounts behavioural study

I need to carry a non-contractual accounts behavoiural study for a bank. The objective is to estimate core/non core ratios and then bucket and ftp them. Any recipe where to start? I have 3yrs of ...
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### Stationarity in first differences of CoVar

I'm currently in the middle of my master thesis and I can't get my head around a specific problem. I have the following process: where the $\Delta CoVar$ measure is calculated in two ways. First, ...
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### Interpretation of Risk Premium for Schwartz one-factor model

I have to deal with this one-factor model: \begin{equation*} \begin{cases} dS_t = \alpha \bigl(\mu - \log(S_t) \bigr)S_t \, dt + \sigma S_{t} \, dW_t \, , t \geq 0,\\ S|_{t=0} = S_0 > 0, \end{...
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### ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
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### What is curvature risk?

The BCBS has presented a new standard approach for measuring risk for a portfolio, which is based on sensitivities, that is “delta”, “vega” and “curvature” risks. Delta risk measures the change in ...
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### How do you quantify credit risk?

I am trying to figure out how to quantify the change in price on a bond for a change in credit risk. I'm not even sure how to quantify a change in credit risk, but I'm thinking possibly something ...
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### Difference between Risk Transfer and Risk Sharing

There seems to be a thin line between risk transfer and risk sharing. Can someone explain with example how can this be differentiated?
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### The name conventions such as ATM, Risk reversal and Butterflies to construct volatility surface

Why people call (vol call - vol put) risk reversal when risk reversal actually is (call 25 delta -put detlta +25)? when constructing volatility surface? The vol of risk revesal should not be vol call -...
61k views

### How to calculate unsystematic risk?

We know that there are 2 types of risk which are systematic and unsystematic risk. Systematic risk can be estimate through the calculation of β in CAPM formula. But how can we estimate the ...
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### Overestimating or underesitmating risk?

This question might be silly, but I want to be sure of myself. If one has Value-at-Risk forecasts and there are zero VaR breaches (i.e. no return value is smaller than or equal to the VaR value) then ...
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### help with p&L vectors historical simulation

My question is about the calculation of the Value at Risk based on historical simulation. I have a table which contains the P&L-vectors of each day of one year. But I don't know what is contained ...
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### Are smart beta and risk parity the same?

So from what I have been reading online, smart beta ETFs aim to use a different type of weighting (instead of by market cap as traditional ETFs like SPY do to track an index) to achieve positive ...
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### Why is the Risk Free Rate 1 over Contingent Claim Prices?

Reading Asset Pricing by John Cochrane (2005), in his second chapter he defines the risk free rate as: Rf = 1 / sum [pc(s)] Where pc(s) are state contingent claims, where s is the state of nature ...
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### How is possible to relate volatility with risk?

I read that equallying voliatility with risk is one of the hardest critics on Quantitative Finance and that this is -indeed- the fundamental base of Quant. This question is analogous considering that ...
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### Mathematical Derivation of Residual Risk

I understand the difference between Excess, Residual and Active Returns. I also understand what Active Risk; defined as: $\sigma_{r_P-r_B}$ (i.e. standard deviation of the difference in returns ...
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### ex ante tracking error correlation between funds

I have two portfolio's called Comb & Global. They both have the same investable universe lets says 3000 stocks & are measured against the same benchmark. So it is possible that both funds hold ...
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### Estimate the risk of swaptions

I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg. For 10Y X 10Y (10 years option ...
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### What is Estimation Risk - VAR Backtest

Simple Question. Can someone explain please: What is Estimation Risk in Value at Risk Backtesting
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### How to Calculate Minimun total Risk?

Is it possible to calculate Minimum Total Risk mathematically for below problem. ...
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### Factor sensitivities for EURUSD swap

Trying to understand various risk factors for a EURUSD swap. While I understand why a EURUSD swap would have USD LIBOR, EURIBOR, EURUSD currency as risk factors, why is it that it would also have EUR ...
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### 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 ...
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### subadditivity of VaR

It is known that the VaR (Value at risk) doesn't fulfill subadditivity, i.e. $VaR(X)+VaR(Y) \le VaR(X+Y)$ But for elliptical distributions subadditivity is true. Questions: (1) Which ...
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### Calculating ex ante returns & probability of a negative return over some horizon

One way to go on about this is to parametrically calculate the returns, i.e. hold the exposure constant and backtest against the factor changes over that horizon. This is not forward looking per se ...
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### Coherent Risk Measures and VaR

I am working on a problem that is worded exactly as follows: Consider the functions $\rho_{1}$ and $\rho_{2}$, defined on the space of random variables with finite expected value in the following way ...