Questions tagged [risk-models]
The risk-models tag has no usage guidance.
110
questions
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17 views
Grade system for backtesting key figures
I want to backtest my trading algorithm. The algorithm trades on a low timeframe with 400 “unique” trades. With unique I mean that it can place 1 or more of those 400 trades given different market ...
2
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2answers
70 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 ...
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1answer
77 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 ...
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1answer
161 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
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1answer
135 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 ...
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0answers
81 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
87 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 ...
1
vote
1answer
108 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.)...
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0answers
46 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
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1answer
164 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 ...
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27 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
163 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 ...
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1answer
85 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 ...
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52 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 ...
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0answers
93 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
1k 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 ...
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0answers
31 views
GARCH, EGARCH, GJR with different distributions
I have estimated different models based on different distributions. Since they are not nested models of each other, I can't use LR tests. But how can I compare the models? Can I do something with the ...
1
vote
1answer
303 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 ...
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0answers
62 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 ...
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0answers
84 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 ...
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0answers
66 views
Philosophy of Financial Risk [closed]
Do you think that there exists a framework on that you can build risk measures?
What are the necessary and desirable properties of a risk measure? (necessary means compulsory and desirable means more ...
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0answers
166 views
Need to solve the stochastic differential equation of Vasicek Model
How to solve the stochastic differential equation of the Vasicek model for the analysis of credit risk? I search in the article "The Distribution of loan portfolio value" (Vasicek) but he doesn't ...
2
votes
3answers
240 views
How to estimate market based PD and LGD for small enterprises?
I am estimating CVA/DVA for derivatives...
How to estimate PD and LGD (or RR) based on market data for the small enterprises, if there is no external rating for them and they don't have bonds or ...
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0answers
61 views
Markowitz models with uncertain returns
I am analyzing the Markowitz models with uncertain returns as follows: after calculating the expected returns and the covariances of 30 monthly historical series of 30 stocks, I resolve the Markowitz ...
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0answers
45 views
Does it make sense to subtract VaR from spot shocks?
I have a model to compute the Event Risk (in dollars) from a shock to the spot price of an asset. I also have the 10-day VaR PnL for the same assets returns. These two numbers are then aggregated to ...
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0answers
574 views
Full Revaluation vs Factor-based Model for risk management
I am looking for literature on comparison of these two approaches.
It looks like many places are using some type of Factor-based Model (Barra, Axioma, Northfield, etc.) for risk management purposes. ...
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0answers
66 views
Hedging jump models with a infinite number of derivatives
First of all, I inform you that I am not a financial mathematician and have vague knowledge about an incomplete market.
Stochastic volatility models are incomplete so derivatives cannot be ...
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0answers
662 views
Barra covariance matrix construction
I am trying to replicate the covariance matrix used by Barra risk models.
All Barra models have half life parameters for volatilities and correlations (e.g. if the half life for volatlity is 90 days, ...
1
vote
1answer
78 views
Unit exposures to Country,Industry and World factors in Fundamental Factor Risk Models
I may have what can be called a rudimentary question about Fundamental Factor models for Risk (ala Barra).
Why is the exposure to World,Countries,Industries set to 1 instead of a real number. The ...
1
vote
1answer
265 views
Why is the expected value of bias statistic one?
I have been reading about factor models recently. One of the ways in which the developer of these models (Barra/ Axioma) measure the accuracy of their models is by calculating the bias statistic for ...
4
votes
2answers
370 views
Physical commodity trading quantitative risk return model
I am very new to commodities, I was previously in portfolio management/optimization (Black Litterman Markowitz etc). I am now a Buy-Sell analyst for Petrochemicals, and need to understand the basic ...
4
votes
1answer
74 views
Measuring interest rate sensitivity for illiquid private investments?
There seems to be surprisingly little literature on this topic. If you had a portfolio consisting of an unlisted illiquid private asset class (eg private real estate, direct infrastructure or private ...
3
votes
1answer
437 views
Can portfolio Value-at-Risk be calculated analytically for multivariate t-distributed returns?
It is widely known that VaR is generally not sub-additive in all but the most restrictive cases (typically when a Gaussian return distribution is assumed, which fails when it matters the most).
...
4
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1answer
107 views
How do energy companies measure the magnitude of the risks of buying energy at a variable price and selling it at a fixed price?
Power and gas retailers are exposed to a variety of risks when selling to domestic customers. Many of these risks arise from the fact that customers are offered a fixed price, while the retailer must ...
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0answers
23 views
Modelling Specialised Lending deals
This question by itself is less a quant question but it has impact on the quantitative model to use.
In 2006 CEBS gudilines we find a definition similar to this:
Specialised Lending (SP) is a sub-...
9
votes
2answers
1k views
Hierarchical Risk Parity with allocation constraints?
In the really interesting paper by Marcos Lopez de Prado a variation of risk parity is applied whereby the underlying assets of the portfolio are first split in 'correlation clusters' and the ...
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2answers
67 views
Correlation or r-squared to determine if a stock has specific movement relative to an index?
In Excel you have the daily prices of all the stocks in the S&P 500 for 3 years; and the index itself.
Using all the data how might you determine which stocks had company specific movement during ...
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2answers
758 views
It is possible to carry out the Component VaR decomposition through non parametric methodologies?
I would like to know if it is possible to break down the VaR risk (using historical and Monte Carlo methodology) among the portfolio assets just like the Component VaR concept in the parametric ...
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0answers
455 views
Altman Z-Score model for PD calculation [duplicate]
I am approaching you with one important for me question.
I have a task to calculate probability of default for our clients. I used an Altman Z-Score model to calculate the Z-Scores for each client.
...
2
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0answers
187 views
Derivative and Credit Risk Modelling
I am looking at acquiring a system to help with multi-instrument modelling. Across the spectrum Equity/FI/Swap/Repo/CDS/FxSwap/Forward/Future/etc for vanilla and more complex derivatives. The modeling ...
1
vote
1answer
283 views
Calculating HIstorical VaR with short time series
Intuitively, Historical VAR is an approach which assumes that in the past data, we have observed everything that can happen, so we consider the worst case(tail). However, when your equity/instrument ...
1
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1answer
77 views
Decreasing dependence during the financial crisis?
In "Is the Potential for International Diversification Disappearing? A Dynamic
Copula Approach" by Christoffersen et al. (2012), the authors present the concept of Conditional Diversification Benefit ...
2
votes
2answers
899 views
Portfolio risk analysis in Options & Mixed portfolios
I am currently working on a risk analysis model that is primarily focused on options portfolios, but will likely be later expanded to cover mixed (options, stocks, bond, futures, etc...) portfolios. ...
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0answers
529 views
Trouble verifying roll rate model
I found this paper on roll rate analysis via a google search. I would post a link, but every page is stamped with "CONFIDENTIAL" at the bottom (humorous since it is easily found). In a nut-shell, ...
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2answers
557 views
Modelling callable bonds in a risk model (historical simulation)
What is a best-practice example on how to model callable bonds in a risk model - I focus on historical simulation (HS).
For plain-vanilla bonds the input factors for historical simulation could be
...
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0answers
131 views
Risk-neutral probabilities
I will use this theorem 3.2 from the book "Quantitative modeling of Derivative Securities" by Marco Avellandea:
Theorem 3.2 - Assume that there is no arbitrage, i.e. there exists a risk neutral ...
4
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0answers
9k views
credit risk - How to calculate the probability of default (private companies)?
Part of my master thesis I am working with a company. I have the project to use their financial database with all the financials data (7 years) of approximately 3’000 companies.
They have their own ...
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votes
1answer
100 views
Want to understand the links and relationship between all the risk metrics?
For Example : if Risk weighted asset (RWA) increased or decreased this month, which other risk metrics could have influenced RWA to increase or decrease. Also in different situations like, upward ...
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0answers
60 views
The best way to generate market scenarios [closed]
What general approaches could you recommend for modeling spot rates(for different maturities) and forward rates?(eg for LIBOR)
I need to generate scenarios for term-structure of interest rates.
What ...
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1answer
90 views
How can I compare two mutual funds' performance with a sparse set of data?
I want to compare the performance of two mutual funds. The only data I have is annual returns for the past 7 years. So I have 7 observations for Fund 1 and 7 observations for Fund 2. In addition, I ...
