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Introductory Books to Network Theory

Can anyone please suggest a good introductory book to Network Theory which is the area of mathematics that is widely used for systemic risk and contagion modeling in finance. If the book contains some ...
Blg Khalil's user avatar
4 votes
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93 views

are there any good papers on sector-specific versions of factor models?

Does anyone know of any good papers that build sector-specific (utilities, financials, energy, etc.) versions of factor models like the Fama French 3-factor or Carhart 4-factor models? For example, ...
Si Chen's user avatar
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Ruin theory with infinite-mean Pareto-distributed claims: how to characterize the ruin time and the reserve prior to ruin

Consider the Cramér–Lundberg model $$\hspace{8em}R(t)=u+c\,t-\sum_{j=1}^{N(t)}V_{j}\,,\hspace{8em}(1)$$ where $c$ and $u$ are positive constants, $N(t)$ is a Poisson process with a rate $\lambda$ (in ...
linguisticturn's user avatar
4 votes
0 answers
179 views

Market Risk FRTB - How to demonstrate that the linear transformation of the alternative definition of Vega reflects the actual vega risk?

I have a question regarding the use of alternative vega sensitivities (bank system sensitivities) in the context of the Vega Risk Charge of the SBM. The article 325t.6 of the CRR allows banks to ...
MI70's user avatar
  • 41
4 votes
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128 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 ...
quant_zero's user avatar
4 votes
0 answers
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 ...
manu's user avatar
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4 votes
0 answers
183 views

Risk factors for derivatives on dividends

I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures. What are the main risk ...
Richi Wa's user avatar
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3 votes
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Aggregation of (cross-sectional) Factor model

Suppose I have a large factor model for security returns, i.e. I have a vector $\mathbf{Y}(t) \in \mathbb{R}^{P}$, with factor loadings $\mathbf{\beta} \in \mathbb{R}^{P \times K}$ over a set of $K$ ...
bfg's user avatar
  • 31
3 votes
0 answers
162 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 ...
not_sure95's user avatar
3 votes
0 answers
83 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 ...
Lahcen Oula's user avatar
3 votes
0 answers
98 views

Standard Assumption Terminology

Regulators are starting to analyse (or at least they are talking about it) model assumptions. We all know that too often our assumptions are just in the model documentation. Furthermore, we have no ...
William's user avatar
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3 votes
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113 views

Benchmarking risk

Given the portfolio return $R$ and the benchmark return $B$, I want to define a risk indicator, measuring the ability to beat the benchmark ($R>B$), given the downside risk taken; the latter not ...
antonio's user avatar
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2 votes
0 answers
205 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 ...
Manish 's user avatar
2 votes
0 answers
125 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, ...
rupert's user avatar
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400 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 ...
user853717's user avatar
2 votes
0 answers
119 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 ...
AndrePoorman's user avatar
2 votes
0 answers
553 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 ...
Carmen González's user avatar
2 votes
0 answers
139 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 ...
user155214's user avatar
2 votes
0 answers
262 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 ...
zatbusch's user avatar
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1 vote
0 answers
105 views

What is the informational content of the volatility skew?

The option-implied volatility is well-known as a measure for the risk-neutral future expected risk for the underlying asset. However, the market prices of options (across different strikes) imply ...
KaiSqDist's user avatar
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1 vote
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Minimizing variance of a long short equity portfolio in practice

I understand the finance 101 explanation of how to minimize variance of a long-short portfolio using a covariance matrix. I also know that it doesn't really work because the covariance matrix is ...
helloimgeorgia's user avatar
1 vote
0 answers
201 views

How to test a risk model?

I'm reading the Barra risk model handbook (2004) available online and trying to understand the methodology. I've read a few materials on portfolio theory, so I can get at least the theoretical ideas ...
whoknowsnot's user avatar
1 vote
0 answers
110 views

Techniques for proxying time series / stock prices

What are some good techniques for proxying time series? My purpose is for risk management / modelling and I would like proxy to missing series. Given that I also have to account for volatility, ...
Landscape's user avatar
  • 548
1 vote
0 answers
50 views

Core deposits forecasting in stress testing

I’m designing a stress test at a commercial bank. What are the advantages/disadvantages of forecasting core NMD deposits vs. total deposit balances?
ps0604's user avatar
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1 vote
1 answer
139 views

Calculation of Total Credit Risk Capital % but seeing lower capital percentage for higher risk band. Is there any correction required?

I am trying to calculate the Total Credit Risk capital % for my learning purpose as given below. Assuming adding 1 single loan with different pds. i have noticed one point in the table and have two ...
user3762120's user avatar
1 vote
0 answers
118 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 ...
Emanuele's user avatar
1 vote
0 answers
90 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 ...
AK88's user avatar
  • 1,850
1 vote
0 answers
96 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 ...
user33875's user avatar
1 vote
0 answers
70 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 ...
PyRsquared's user avatar
1 vote
0 answers
3k 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, ...
AK88's user avatar
  • 1,850
1 vote
0 answers
665 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, ...
Joseph Wood's user avatar
1 vote
0 answers
597 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" * ...
Sona's user avatar
  • 11
1 vote
0 answers
150 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 ...
user2071043's user avatar
1 vote
0 answers
68 views

Should portfolio be optimized by marking to the future than marking to market (excluding currencies)?

Observing the negative interest bonds in Switzerland, Denmark, GErmany the value of higher presently (credit-free) outgoing cash flows seems less important than the value of lower future (credit-free) ...
user7056's user avatar
  • 728
0 votes
0 answers
18 views

Cs01 computation for TRS with underlying single name bond

What’s the cs01 calculation formula for TRS with underlying bond for a single corporate issuer? Thanks in advance!
Cathify's user avatar
0 votes
0 answers
19 views

Approximating Distortion Risk Measures by the Sum of their CVaRs

Can you please cite me to the paper that prove the theorem that any distortion risk measure can be approximated using the sum of its CVaRs? Someone said it is Axiomatic Characterization of Distortion ...
Leboea Polinyane's user avatar
0 votes
0 answers
38 views

How to create custom factors based on an existing factor model?

I'm searching some literatures or books illustrating how to create custom factors based on an existing factor model. For example, given an existing Barra factor risk model, if I want to add some ...
inf's user avatar
  • 41
0 votes
1 answer
76 views

How should I create a Risk measurement Variable?

I have clients who take loans (Advances) weekly. The way that they repay the advance is after 3 weeks when their goods are sold, using the sales proceeds of the goods. But if the goods don't sell for ...
user70803's user avatar
0 votes
0 answers
67 views

equities hedging betas for a cross-sectional risk model

This question is on equities risk models. I would like to know how to define betas when using a cross-sectional regression approach, rather than the time series approach. My goal is beta hedging of a ...
jam123's user avatar
  • 11
0 votes
1 answer
107 views

Probability Theory: Maximizing the difference between distribution functions

Given a sample of observations $X$, by changing a parameter $p$ we can divide $X$ into two subsamples $X_1$ and $X_2$ (this division is done in a non-trivial way which is nonetheless irrelevant to ...
bond-pricer's user avatar
0 votes
0 answers
124 views

Practical implications of Andy Lo paper on Sharpe ratio using quarterly returns?

I am hoping to determine the practical implications of the Andy Lo paper criticizing the use of a scaling factor in converting periodic Sharpe ratio to annualized Sharpe ratio. I am particularly ...
Jason008's user avatar
  • 131
0 votes
0 answers
92 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 ...
user3398876's user avatar
0 votes
0 answers
112 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 ...
Ryan Wilkinson's user avatar
0 votes
0 answers
298 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 ...
JungleDiff's user avatar
0 votes
0 answers
3k 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. ...
AK88's user avatar
  • 1,850
0 votes
0 answers
222 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 ...
Wolfy's user avatar
  • 728
-1 votes
1 answer
196 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 ...
Marco's user avatar
  • 139
-1 votes
1 answer
133 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 ...
DeeTee's user avatar
  • 11
-1 votes
1 answer
184 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?
Tuan N.'s user avatar
  • 11