Value-at-risk (VAR)
Valid Assumptions Required: Historical Simulation VaR
Brett Humphreys discusses the assumptions underlying the calculation of a VAR using the historical simulation methodology.
Valid Assumptions Required: examining forward curve assumptions
Brett Humphreys and Eric Raleigh review assumptions about the forward curve and the difference between relative and absolute dates.
Valid Assumptions Required: confidence level and holding period
In the second article of his series, Brett Humphreys examines the assumptions associated with selecting a confidence level and a holding period for a VaR calculation
Valid Assumptions Required: aggregation
In the first article of this series, in which Brett Humphreys questions some of the assumptions and decisions that go into the calculation of value-at-risk, he focuses on portfolio aggregation.
Operational risk - Operational VAR: a closed-form approximation
Klaus Bocker and Claudia Kluppelberg investigate a simple loss-distribution model for operational risk. They show that, when loss data is heavy-tailed (which in practice it is), a simple closed-form approximation for operational value-at-risk (VAR) can…
Time for multi-period capital models
Several financial institutions use single-period models to determine their credit portfolio loss distribution, calculate their loss volatility and assign economic capital.
Operational VAR: a closed-form approximation
Klaus Böcker and Claudia Klüppelberg investigate a simple loss distribution model for operational risk. They show that, when loss data is heavy-tailed (which in practice it is), a simple closed-form approximation for operational VAR can be obtained. They…
An economic capital approach for hedge fund structured products
Hedge fund structured products are increasingly favoured by investors. Banks have been swiftly developing their commercial offers to meet this demand. However, the theoretical framework for the risk management of these products remains little explored,…
Time for multi-period capital models
Several financial institutions use single-period models to determine their credit portfolio lossdistribution, calculate their loss volatility and assign economic capital. Here, Kevin Thompson,Alistair McLeod, Panayiotis Teklos and Shobhit Gupta…
Modelling counterparty credit exposure for credit default swaps
Modelling counterparty credit exposure for credit derivatives is more complicated than for non-credit products, since the reference credit and counterparty can exhibit positive default correlation. Here, Christian Hille, John Ring and Hideki Shimamoto…
A Markovian approach to modelling correlated defaults
Vladyslav Putyatin, David Prieul and Svetlana Maslova unveil a simple dynamic binomial credit model with a Poissonian mixing distribution to satisfy the constraints faced by financial institutions assessing their credit exposure in a consistent manner…
The misdirected directive?
Germany's financial regulator, BaFin, tried to steal a march on its European rivals by implementing a new directive that should open the door to asset managers investing in new products and using over-the-counter derivatives. But did it get it wrong?
Estimating economic capital allocations for market and credit risk
Value-at-Risk (VAR) measures often are used as a basis for setting so-called"economic capital" or buffer stock measures of equity capitalization requirements.VAR measures do not account for the time value of money or theequilibrium required return…