Questions tagged [risk-models]

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12
votes
1answer
523 views

Quantifying climate change risk

I am looking for resources on applicable and practical solutions for estimation and quantifying climate change risk from asset owners perspective (for example, a portfolio of equity, fixed income, and ...
1
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0answers
44 views

What is the market share of MSCI Barra Equity Model?

My understanding is that MSCI/Barra's model has a very large market share in funds and banks, but I cannot find out how large is the exact market share. Is there any data on this, or can someone ...
0
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0answers
32 views

Where can I get historical updates to equity risk models (e.g. Barra)?

In risk models (such as Barra), new factors are added over time, and the model structures are also changed over time. I hope to get as much information on historical changes as possible. Apart from ...
0
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0answers
29 views

Expected return and risk profile from a given scenario

I have this scenario: "Designing a model on python but firstly, needing an equation to work from. It's a project aimed at decentralizing drug discovery. So, we're planning on running some screens ...
0
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0answers
42 views

Covariance matrix of the returns of defaultable bonds

How can I compute the covariance of bond returns for a universe of bonds? Unlike equities, bonds have a finite maturity and thus there is a price path dependence as the bond matures and expires at par ...
0
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0answers
10 views

Calculate core deposit bucket percentages

I need to forecast core deposits in a commercial bank. One technique that I saw consists in dividing the amounts in buckets and applying a percentage to each bucket to obtain the core deposit. For ...
0
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1answer
42 views

Variables for retail lending of bank

Typically to estimate the credit-worthiness of customers in retain bank lending, banks generally consider many demographic and socio-economic variables most importantly - Age, number of dependents, ...
0
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1answer
72 views

Standard market risk platform Value-at-Risk (VaR)

if possible, could you share publicly available methodological guides/pamphlets or post links to specialised websites which give sufficient detail of the basic assumptions, algorithms and possible ...
1
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0answers
45 views

Calculation of Expected Shortfall using IMA Approach ( FRTB)

I am trying to calculate the Expected shortfall of a FX portfolio through IMA Approach of FRTB in excel . I have used several combinations in excel to get the liquidity horizons and then calculate the ...
0
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0answers
22 views

How to compute SRISK for an unbalanced dataset?

I'm writing a thesis about SRISK in the banking sector. My dataset goes from 2005 until 2020 and I'm going to use the following formula to compute the systemic risk SRISK=k⋅DEBT−(1−k)⋅EQUITY⋅(1−LRMES) ...
-2
votes
2answers
52 views

What happens if my risk factor caught by statistical risk model using PCA turns out to be totally different from other PM's risk factor? [closed]

In order to explain systematic risk we use risk factors and I've learned that since they try to explain 'systematic' risk, risk factors are relatively well-known. However, what happens if the risk ...
2
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0answers
125 views

Is implied volatility really all that usefull?

I take implied volatility as the positive floating point number which lets the BS formula match an observed option price (assuming we have some useful interest rate, some underlying, etc). How useful ...
0
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0answers
59 views

Why factor return is estimated given factor exposure?

When using factor risk model, especially fundamental risk model, factor exposures are given and factor returns are estimated using regression method. However, I cannot intuitively understand why ...
0
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0answers
37 views

Implications of modeling operational risks without frequency distribution

When modeling operational risk, the Loss Distribution Approach (LDA) is widely used. Usually, we model the loss frequency distribution and the loss severity distribution and then aggregate both to ...
2
votes
0answers
68 views

Arrow Debreu Price vs Green's function

How is the Arrow Debreu Price related to Green's function at an intuitive level and how is this used in practice? Note Added 2021/02/01 I came across this in the Black Derman Toy model paper by Boyle, ...
2
votes
1answer
82 views

Downside deviation (semivariance) in m.v. portfolio optimization

Currently I am considering the downside deviation or semivariance in a m.v. optimization framework. For this specific measure of risk I have found in papers different formulae. The majority of them ...
2
votes
1answer
217 views

Mean Absolute Deviation in m.v. portfolio optimization

I just read some articles about $MAD$ as a measure of risk in finance. Is the following formulation a correct way to implement a $MAD$ portfolio optimization model which minimizes risk without ...
2
votes
0answers
140 views

Implied Gamma VS Implied Volatility

Reading this paper, I'm struggling to understand what the author is saying with paragraphs below (see pages 39-42): We define Implied Gamma ($\Gamma_{\operatorname{implied}}$) as the value of the ...
-1
votes
1answer
107 views

Capital Allocation, VaR, Expected Shortfall

Are there any serious drawbacks / weaknesses in the Euler allocation method, when used to allocate VaR capital (and potentially Expected Shortfall) to risk factors in a portfolio? I notice that ...
1
vote
1answer
56 views

Model Validation Aggregation Documentation (Binomial, Hosmer-Lemeshow, Tolerance) - Credit Risk et cetera

I came across some document that says for a PD (Probability of Default) model in order to assess its accuracy you need to first look at the Binomial Test, then the Hosmer-Lemeshow Chi-square test, ...
0
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1answer
48 views

I’m trying to construct a binomial model that uses 2 risky model - number of steps varied

So with this question I am unsure how to even do a binomial model with 2 risky assets never mind having n-steps. All the examples I’ve found are either not containing any risky assets or only have one....
2
votes
1answer
203 views

Code (Python or R) references for operational risk models (AMA/COM)

I have to build an operational risk model and to be compliant with Basell II and III regulations I thought of using AMA (Advanced measurement approach) or COM (change of measurement). We have no ...
0
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0answers
39 views

Concavity of Cumulative Accuracy Profile curve

I am writing my thesis for the default probability estimation in low default portfolios. One way to estimate the probability of default is from the Cumulative Accuracy Profile (CAP) curve (Marco Van ...
0
votes
0answers
98 views

Calibration of the Ho Lee model in Excel only based on historical treasury rates (3 months)

I would like to calibrate the Ho Lee model $dr_t=θ_tdt+σdW_t$ with $θ(t)= F_t(0,t)+σ^2$ in Excel based on a time series of 3-month treasury rates and then compare the real time series with that ...
0
votes
2answers
693 views

Do the weights of the exponentially weighted moving average (EWMA) have to sum to 1?

I am currently trying to calculate a volatility by using the EWMA model because it is said to yield better results than just using an equal weighted calculation approach. However I am a bit confused ...
3
votes
0answers
47 views

ESG risk factors

In the context of EU action on sustainable finance, the European Commission has initiated a series of regulations in order to achieve the goals of Paris Agreement on sustainability. One of those ...
0
votes
1answer
77 views

Ratios or combinations of risk measures

In finance, alternative risk measures such as value-at-risk (VaR) and GARCH are introduced as replacements to standard deviation volatility. Is there any application or value where several risk ...
2
votes
1answer
310 views

Open source projects to gain demonstrable experience in implementing modeling in C++

I have a mathematics background with a PhD in mathematics (not related to stochastic processors or financial mathematics) and have been in derivatives valuation for around 6 years. When applying for ...
3
votes
1answer
163 views

Why didn't stock markets drop in response to COVID-19 earlier, way before Feb 21 2020?

The S&P500 started to drop only on Feb 20 2020, and the Nikkei 225 and the FTSE 100 on Feb 21 2020. Yet as early as Jan 120, COVID-19 was reported in Hong Kong, South Korea, and Japan. Their ...
4
votes
1answer
107 views

How to model/price the risk of Covid-19 and other pandemics

How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and ...
2
votes
2answers
122 views

Quantitative risk management for energy markets

I'm currently preparing an exam about energy markets. The knowledge of notions of quantitative risk management accounts for the 50% of the total exam. During my university education, though, I didn't ...
2
votes
0answers
47 views

Where could I find code to compute Potential Future Exposure

Ideally code in SAS, R, Python or Matlab for calculations involving counterparties holding positions in energy markets on multiple price curves, with a Monte-Carlo methodology or a simpified ...
2
votes
3answers
169 views

PD and LGD for ECL calculations needs to be time dependent?

I'm studying the implementation of an expected credit loss (ECL) model. I have encountered a complication. Do I need to calculate a probability of default (PD) and loss given default (LGD) with a time ...
0
votes
1answer
123 views

Demonstration of the Schweinler-Wigner Orthogonalization procedure

Can anyone give me a practical demonstration of the Schweinler-Wigner Orthogonalization procedure? The steps of performing it or possibly a code snippet. The Schweinler-Wigner Orthogonalization ...
2
votes
1answer
2k views

Absolute and Relative Value at Risk

Is it correct to calculate the VaR as 99% max between loss and profit. E.g. if 99% VaR on the loss side of the distribution is -100, and on the positive side of the distribution there is a value ...
2
votes
2answers
302 views

Stop-Loss strategies

Does anyone know some bibliography about the problems or limitations of using Stop-Loss strategies in a portfolio? Let me explain better: for example you can have a portfolio of 30 stocks from ...
1
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0answers
92 views

How to correctly simulate volatility shocks?

I am working on the comparison of different volatility timing/target strategies on portfolios starting from different conditions (data, asset classes, calculation of realized volatility, different ...
-1
votes
1answer
105 views

Backtesting a stock scoring model

I'm working on a simple stock scoring model consisiting of 3 factors: 1.market cap 2.liquidity of the stock 3.the value at risk we defined 3 intervals for each factor and we assigned the ...
3
votes
1answer
233 views

Portfolio Systematic Risk, Breaking it down into factor % contributions

I have a portfolio (p) of N equities, with let's say weights vector (m) at the start of the calculation period. Each equity has its own set of factors (like corresponding country, industry index, etc.)...
2
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0answers
52 views

Conceptual help - Machine Learning on finance data set [closed]

I am working on Anomaly detection model problem for a finance data set - set of gift card activation transactions. My team member suggested an idea that " First train the model with normal instances ...
1
vote
1answer
368 views

Barra model: why standardize the fundamental risk factors?

The two main types of risk factors included in the famous Barra model are called the "fundamental factors", and "industry factors," and the thing that I do not understand is why are only the former ...
0
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0answers
41 views

How to Risk and Return using Carhart 4 factor model

I have to calculate firm risk and return for a group of firms. I have firm CUSIPs. I also have access to CRSP data from WRDS. Can someone explain to me how I can use CRSP and data from Ken French’s ...
4
votes
1answer
198 views

Dominating credit risk modeling approaches for capital calculation in banks

In Basel/CRR (capital requirement regulation) there are various approaches for the estimation of capital requirements. For corporate exposures there is the Foundations IRB approach (F-IRBA, own ...
0
votes
1answer
89 views

Having only 2 Industry risk factors?

Is it possible to build a risk model that only has 2 industry risk factors? For example, if I wanted just Tobacco and Healthcare industries as risk factors can I do that? If I did that do I have to ...
0
votes
0answers
60 views

Factor Loading with multiple exposures?

How do I decompose portfolio exposures when assets may have exposure to a few of my risk factors? For instance I have some sector and state specific risk factors. If I have a bond with exposure to ...
0
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0answers
142 views

Barra Equity Risk Model Methodology

I am interested in learning about the Barra's Equity risk model methodology. When I google, this is the first file that comes up: http://www.alacra.com/alacra/help/barra_handbook_US.pdf However, it ...
4
votes
2answers
2k views

How to add Risks-Not-In-VaR (RNIV) to VaR under Basel III

I am trying to generate/prove the magnitude of the over-conservativeness of the regulatory VaR (internal models) under Basel III against what a more accurate VaR would be. However, I can't seem to ...
2
votes
1answer
896 views

rationale for maturity adjustment formula in basel IRB formula

For capital requirement, rwa is computed as a product of terms including a K (unexpected losses). (As shown is the summary from wikipedia : https://en.m.wikipedia.org/wiki/Advanced_IRB ) K is ...
1
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0answers
76 views

Regression model: short vs long history

There is a dilemma between choosing short history (1-2 years) and long history (5-10 years) for a regression model. Are there any resources that offer some findings on pros and cons of these two? From ...
4
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0answers
102 views

Why are thousand-ish-factor vendor risk models not extremely overfit and inaccurate?

Many vendor risk models have many hundreds, or even thousands of factors (many of which are highly correlated with each other). Underlying all these risk models is some sort of covariance matrix in ...