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Questions tagged [risk-models]

The tag has no usage guidance.

2
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3answers
79 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 ...
1
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0answers
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
38 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 ...
0
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0answers
55 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. ...
2
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0answers
52 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 ...
0
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0answers
173 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, ...
0
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1answer
55 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
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1answer
145 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 ...
0
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0answers
56 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 ...
4
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2answers
202 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
70 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
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1answer
218 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
94 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-...
6
votes
2answers
749 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 ...
0
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2answers
48 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 ...
0
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2answers
446 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 ...
1
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0answers
293 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
125 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
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1answer
223 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
vote
1answer
66 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
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2answers
709 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. ...
1
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0answers
340 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, ...
1
vote
2answers
429 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 ...
0
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0answers
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 ...
4
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0answers
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 ...
2
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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 ...
2
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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 ...
1
vote
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 ...
7
votes
1answer
559 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 ...
7
votes
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 ...
1
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0answers
395 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" * ...
1
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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 ...
1
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1answer
572 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!
1
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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 ...
1
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1answer
512 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 ...
1
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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 ...
2
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1answer
642 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 ...
3
votes
2answers
520 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 ...
3
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1answer
94 views

Longevity risk modelling

What is Longevity risk, and how to model it under DC and DB pension plans? characters|characters|characters|characters|characters|
2
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1answer
633 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 ...
4
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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 ...
2
votes
1answer
455 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?
4
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1answer
342 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 $-...
0
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1answer
599 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?
5
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2answers
392 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 ...
3
votes
2answers
681 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 ...
0
votes
1answer
296 views

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 ...
20
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3answers
4k views

What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...