Questions tagged [risk-models]
The risk-models tag has no usage guidance.
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Philosophy of Financial Risk
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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28 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 ...
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3answers
92 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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43 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
39 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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77 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
55 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
225 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, ...
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1answer
56 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 ...
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1answer
154 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 ...
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57 views
CreditGrades model calibration and initial values
Currently doing a project on structural models, and I want to apply the CreditGrades model. My question is what values are the parameters going to take, in order to update the implied probability of ...
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2answers
223 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 ...
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1answer
71 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 ...
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1answer
241 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).
...
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1answer
100 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
22 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-...
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2answers
805 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
49 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
464 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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302 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.
...
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0answers
129 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 ...
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1answer
231 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 ...
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1answer
70 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 ...
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2answers
726 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
357 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
443 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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114 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 ...
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8k 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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0answers
68 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
59 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
89 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 ...
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1answer
563 views
Is volatility for the next day forecastable? To any extent?
In a more general way: is there
1) a methodological approach to quantify the correctness of a model that produces a probability distribution for the, say, S&P 500 index return for the next ...
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2answers
1k views
Quantitative Real Estate Investment Finance
I'm wondering if there is an application of quantitative finance to real estate investment? Specifically I'm wondering about models for pricing small neighborhoods (or even single houses) that take ...
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0answers
402 views
Market risk calculation for Fixed income position
I have come across a somewhat strange formula (atleast to me) for Value at Risk calculation for a Bond position. This typical formula looks like below:
PnL = Beta * "Some industry Credit spread" * ...
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0answers
122 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 ...
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1answer
590 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
2k views
Actually benefiting from logistic regression to estimate probability of default
Does anyone know any events where using logistic regression to estimate probability of default has led to a bank, financial institution, government or anything really to benefit in practice?
I see a ...
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1answer
528 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
69 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
649 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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2answers
531 views
How to get Multivariate Betas from an Estimated EWMA co variance Matrix?
I have a portfolio of 4 assets. I also have returns for 3 indices. I want to get the multivariate betas for these 4 assets-based on these assets. I only have the 7 x 7 covariance matrix estimated by a ...
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1answer
95 views
Longevity risk modelling
What is Longevity risk, and how to model it under DC and DB pension plans?
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2
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1answer
643 views
Expected Shortfall and Spectral Risk Measure
Not sure I am understanding spectral risk measures correctly.
Why is there an equal weighting scheme placed on the tail losses in expected shortfall.
Will that no bias the expected value of the loss ...
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9answers
2k views
Why would there be a positive risk-free rate?
Most financial models include a risk-free rate or risk-free asset.
Why should there be such thing as a positive risk-free rate?
I dont see why an asset would provide a positive (real) return if it ...
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1answer
461 views
Estimate correlation of time series whose histories differ in length
Very often in quantitative analysis (e.g. calculating portfolio volatility) we have to analyze various time series - mostly returns - whose lenghts differ.
Risk systems usually apply a one-factor ...
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1answer
168 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?
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1answer
345 views
questions on VAR manipulation
The book of Financial Risk forecasting by Danielsson gives the following example about VAR manipulation. I have two questions:
1) If $0> VAR_1 > VAR_0$ , why the following figure plots it as $-...
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1answer
614 views
What does it mean if $\beta$ is insignificant in the CAPM model?
What can we say about an asset which $\beta$ calculated using the CAPM model (regressing the excess returns of the stock vs excess returns of the market) is insignificant?
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2answers
395 views
quantiative risk measure how they are implemented in R and their use
So far I have just theoretical knowledge of risk measure and never used them in application. Therefore I have some basic question how risk measures are used in reality and how they are implemented in ...
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2answers
686 views
How to compare different volatility measures?
I read the Euan Sinclair's book (Volatility trading) in which he suggests different volatility estimators (Close-to-close, Parkinson, Garman-Klass, ...).
I am inquiring about what is the best stock ...
