Questions tagged [risk]

The possibility that a negative event (such as a loss) will happen.

78 questions with no upvoted or accepted answers
Filter by
Sorted by
Tagged with
13
votes
0answers
518 views

Optimization procedure for entropy pooling

I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress ...
6
votes
1answer
213 views

Non-contractual accounts behavioural study

I need to carry a non-contractual accounts behavoiural study for a bank. The objective is to estimate core/non core ratios and then bucket and ftp them. Any recipe where to start? I have 3yrs of ...
4
votes
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 ...
4
votes
0answers
77 views

Whats the big deal between volatility and the risk free rate?

I am trying to understand asset price volatility. Many of the news articles I read link how stock market volatility is linked to asset price volatility? To give an example, in Mike Mackenzie's (...
4
votes
0answers
92 views

Reference request for research on the maximum drawdown **ratio** (NOT value)

Let's suppose the asset price process follows a Geometric Brownian motion $S_t \sim GBM(\mu, \sigma),\,t\ge 0$, and define the two process: $$ \begin{align} \text{MSF}_t &:= \max_{\tau\in[0,t]} S_\...
4
votes
0answers
693 views

What is the difference between gross and net enterprise wide risk?

Reading a Basel paper on recommendations on internal economic capital models. One of the recommendations says members of the bank's board should be able to demonstrate understanding of the difference ...
3
votes
0answers
51 views

Using transaction data to predict default of the customer

I am trying to build a prediction model that utilize the huge transaction database of all the customers of a bank. My dataset currently looks like this: ...
3
votes
0answers
174 views

Parametric VaR of a portfolio of a stock and an option on that stock

I understand how to calculate the parametric VaR of a stock and an option separately. But I don't understand how one can calculate the VaR of a portfolio of a stock and an option on that stock using ...
3
votes
0answers
37 views

conferences for credit portfolio managers

What are worth conferences for credit portfolio managers? I appreciate your recommendations! PS:I am aware that this question is not the typical quant.SE question, BUT I couldn`t find reliable ...
3
votes
0answers
111 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 ...
2
votes
0answers
33 views

To price Municipal Bonds and risks I want to know the percent of unfunded pension liabilities ($3.8T) to total state and local gov liabilities

Unfunded pension liabilities keep growing and this seems alarming to both pension holders but also Municipal Bond holders. I would like to know how large this problem is to better price Munis and ...
2
votes
1answer
76 views

Modified Sharpe ratio

I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper ...
2
votes
0answers
30 views

Flattening a Credit Loss Curve

I have a credit loss curve for 36 months and I want to transform that curve into a 20 months curve without changing its final loss. My credit loss vector is a % of unpaid principal balance in a ...
2
votes
0answers
41 views

Transformation of random variables and second-order stochastic dominance

Suppose $X$ and $Y$ are two random variables where $X$ SOSD* $Y$. Let $g(\bullet)$ be a monotonic function and $X'=g(X)$ and $Y'=g(Y)$. Under what conditions of $g$ is $X'$ SOSD $Y'$? I know if $g$ ...
2
votes
0answers
66 views

Statistical methods to compare two financial series data

I have two financial series data, x and x', where x' was formed form ...
2
votes
0answers
55 views

z-score of an active return with a no-volatility benchmark

I don't know how to approach the problem I am having. Basically, the statement I am trying to make is: the fund's return is X standard distribution away from the mean. Normally, for a single fund, ...
2
votes
0answers
51 views

VaR decomposition of non-normal portfolio by g-and-h distribution

According to Doowoo Nam (2013), VaR of non-normal portfolio returns approximated by g-and-h distribution can be decomposed pretty much in the same way as the VaR of a portfolio with normal returns. ...
2
votes
0answers
370 views

subadditivity of VaR

It is known that the VaR (Value at risk) doesn't fulfill subadditivity, i.e. $VaR(X)+VaR(Y) \le VaR(X+Y)$ But for elliptical distributions subadditivity is true. Questions: (1) Which ...
2
votes
0answers
321 views

Bayesian analysis in R: Probability of default, low default portfolios

I want to apply the knowledge of this paper (Bayesian estimation of probabilities of default for low default portfolios, by Dirk Tasche) in R, but I can't find the right bayesian package and functions ...
2
votes
0answers
205 views

Non-parametric estimator - CVaR / Expected shortfall

Is the estimation of the CVaR using known non-parametric methods (histogram, kernels) different than the estimation of any other R.V.? If the answer is yes, I am interested to know whether there are ...
2
votes
0answers
35 views

How does risk attitude influence trading? (Bibliography seeking)

I wonder how risk-averse or risk-seeking investors behave in a stock market. Is there any bibliography that deals with that? For example, suppose that we have a risk-averse investor that buys a ...
2
votes
0answers
150 views

Using a hybrid approach to calculate operational risk capital

I've read that a hybrid approach combing scenario analysis and loss distribution analysis can be used to calculate operational risk capital under the advanced models approach. I've read a couple ways ...
2
votes
0answers
225 views

Risk measures, Risk Management and Financial Risk Area

I'm currently searching material about market risk and I learned about coherent risk measures, VaR, CVaR (or expected shortfall), volatility. All that because I have to make a Financial Risk Area for ...
2
votes
0answers
175 views

Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
2
votes
0answers
48 views

Formal Proof of Immunization Techniqu

Please correct me if I am wrong in understanding the Immunisation Technique behind bond interest rate risk management. It says that any change in interest rate can be neutralised by reinvesting the ...
2
votes
0answers
112 views

volume augmented garch(1,1) model in matlab

Actually I want to add volume traded of a stock in my Garch(1,1) model to forecast the volatility.In Matlab I can specify the model as garch(1,1) and then use estimate and forecast commands.But I am ...
2
votes
0answers
245 views

regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
2
votes
0answers
242 views

Modeling asset performance to Bitcoin revenue

I'm attempting to model asset performance to Bitcoin revenue, which is a driving force in the Bitcoin community. Question Is there any model, or research being done that tracks "hashes per second" (...
1
vote
0answers
34 views

Mean Semivariance Optimization VS PMPT

Mean Semivariance optimization defines semivariance, variance only below the benchmark/required rate of return, as: $(1/T).\sum_{t=1}^{T} [Min(R_{it}-B,0)]^2$ where $B$ is the benchmark rate, $R_{i}$...
1
vote
0answers
51 views

One periodic binomial model

I need to look into a one-period Binomial model $(B_t, S_t)$ with interest rate $r = 0.1$ , $S_0 = 100$ and $$ S_t= 120 \, \text{with probability}\, 0.5 $$ $$ S_t= 60\, \text{with probability}\, 0.5 $$...
1
vote
0answers
17 views

single period security market with two assets

Consider a single period security market with two assets. Assume the current prices are There are two states at time one and the payoff matrix is 1.Suppose the investor believes that each state has ...
1
vote
2answers
84 views

How do I derive a blend of a 3Y future and 10Y future risk?

So I have a portfolio of Govt. bonds that I'm trying to hedge with futures. Let's take one of the bonds out of the portfolio as an example. In bloomberg, every bond and its future counterparts has a ...
1
vote
0answers
44 views

Definitions of bubbles

In Financial Bubbles: Mechanisms and Diagnostics, Sornette and Cauwels define the concept of "bubble": More technically, during a bubble phase, the price follows a faster-than-exponential power law ...
1
vote
1answer
114 views

PCA on a portfolio of spot and forward contracts

I have a portfolio of spot and FX forwards on various currencies all based to AUD. I need to able to quantify how the changes in amount, tilt and curvature of the AUD curve would impact my p/l. ...
1
vote
0answers
69 views

Risk-aversion parameters estimation in utility functions

Are there any "typical" risk-aversion parameters for power utility function and exponential utility function? Once I've seen an articel, in which author stated that for extremely risky person gamma in ...
1
vote
1answer
52 views

Backtesting model results, but backtesting output sampled at different frequency than model output

So, I'm trying to backtest a model that computes P&L. This model pulls sensitivities on a weekly basis and applies market shocks to these sensitivities to project quarterly P&L. I want to ...
1
vote
0answers
54 views

Preferred Stock pricing model

I am trying to build a model to price a preferred stock. I want to model the dividends as random payments. I can't find any papers online on the subject. Does anyone have a reference for me?
1
vote
0answers
44 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 ...
1
vote
0answers
80 views

How to reasonably aggregate returns across both different assets and different time-horizons?

This might be a somewhat open question, so any suggestion of improvement is welcome. Suppose at time $t=0$, we have $N$ different assets whose weights are $w_1,\cdots,w_n$ ($\sum w_i = 1$), and they ...
1
vote
1answer
417 views

Market Risk - Trading and Banking book in light of Basel III

I can not understand whether Basel III (in the part of market risk) applies both to Trading Book and Banking book or just to the first one. I have read that for what concerns Banking book you only ...
1
vote
0answers
46 views

Cramer-Lundberg: Adjustment coefficient does not exist

The question is about Ruin theory and the Cramer-Lundberg model. I am wondering if there is an example of distribution where the MGF is finite, but the adjustment coefficient does not exist. Can you ...
1
vote
0answers
60 views

How can I find what Loss Given Default to use

I want to come up with the appropriate loss given default for a commodity derivative in my CVA calculation. would anyone know where I can find this information?
1
vote
0answers
192 views

Portfolio risk decomposition using historical data: which weights to use for assets?

I am trying to decompose portfolio risk given historical returns of each asset in the portfolio. For a basic 2 asset portfolio, the portfolio risk is given as $$σ_p^2 = w_x^2 \cdot σ_x^2+ w_y^2 \...
1
vote
0answers
129 views

optimizing the expected utility

The market consist of one single stock and call options with different strike price based on the given stock.Suppose the market believes the stock follows the following GBM:$$dS_t=\mu S_tdt+\sigma ...
1
vote
0answers
176 views

CRRA utility application

I fitted a CRRA utility function to daily S&P 500 returns in R. (As for instance in Optimal Option Portfolio Strategies, page 10) ...
1
vote
0answers
53 views

How to find the ideal options trade given certain return distribution?

Suppose I have a probability distribution for the return of a given stock from now until some expiration date. Is there any algorithm/process/software that will take that probability distribution and ...
1
vote
0answers
166 views

Expected shortfall of stable distribution by Stoyanov

I've been working on calculating parametric ES assuming the returns follow Paretian stable law. Given the four parameters - $\alpha, \beta,\sigma,\mu$- Stoyanov introduces closed form solution of the ...
1
vote
0answers
158 views

Estimate the risk of swaptions

I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg. For 10Y X 10Y (10 years option ...
1
vote
0answers
119 views

calculating long short portfolios currency exposure

I have calculated the currency exposures of a long short portfolio simply by summing the weights of each stock. However I was told that I need to incorporate the dollar borrowing (short dollars), I ...
1
vote
0answers
213 views

Why is credit exposure higher for a smaller probability of default than for a larger default?

I'm having trouble grasping this concept; I don't see the relevance of the explanation given in the text (Gregory, Counterparty Credit Risk and CVA) either. When expected exposure and probability of ...