Risk Management
Banks are interested in evaluating the risk of the financial distress before giving out a loan. Many researchers proposed the use of models based on the Neural Networks in order to help the banker better make a decision. The objective of…
We survey systemic risks to financial markets and present a high-level description of an algorithm that measures systemic risk in terms of coupled networks.
In this paper we introduce a new coherent cumulative risk measure on $\mathcal{R}_L^p$, the space of c\`adl\`ag processes having Laplace transform. This new coherent risk measure turns out to be tractable enough within a class of models…
Recently, a marked Poisson process (MPP) model for life catastrophe risk was proposed in [6]. We provide a justification and further support for the model by considering more general Poisson point processes in the context of extreme value…
We show how to restructure the counterparty risk faced by the originator of a securitization or covered bond arising from an interest rate hedging swap assisted by a "one-way" collateral agreement. This risk emerges when the swap is…
In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct…
The dependency structure of credit risk parameters is a key driver for capital consumption and receives regulatory and scientific attention. The impact of parameter imperfections on the quality of expected loss (EL) in the sense of a fair,…
Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the…
The estimation of probabilities of default (PDs) for low default portfolios by means of upper confidence bounds is a well established procedure in many financial institutions. However, there are often discussions within the institutions or…
When investors have heterogeneous attitudes towards risk, it is reasonable to assume that each investor has a pricing kernel, and that these individual pricing kernels are aggregated to form a market pricing kernel. The various investors…
We study the ruin problem over a risk process described by a discrete-time Markov model. In contrast to previous studies that focused on the asymptotic behaviour of ruin probabilities for large values of the initial capital, we provide a…
This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven…
We study the effects of non-systematic and systematic mortality risks on the required initial capital in a pension plan, in the presence of financial risks. We discover that for a pension plan with few members the impact of pooling on the…
The literature of heavy tails (typically) starts with a random walk and finds mechanisms that lead to fat tails under aggregation. We follow the inverse route and show how starting with fat tails we get to thin-tails when deriving the…
The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer…
Model risk has a huge impact on any risk measurement procedure and its quantification is therefore a crucial step. In this paper, we introduce three quantitative measures of model risk when choosing a particular reference model within a…
Credit risk management in Italy is characterized, in the period June 2008 to June 2012, by frequent (frequency=0.5 cycles per year) and intense (peak amplitude: mean=39.2 billion Euros, s.e.=2.83 billion Euros) quarterly contractions and…
The authors examine the concept of probability of default for asset-backed loans. In contrast to unsecured loans it is shown that probability of default can be defined as either a measure of the likelihood of the borrower failing to make…
In the wake of the ongoing global financial crisis, interdependencies among banks have come into focus in trying to assess systemic risk. To date, such analysis has largely been based on numerical data. By contrast, this study attempts to…
Different approaches to defining dynamic market risk measures are available in the literature. Most are focused or derived from probability theory, economic behavior or dynamic programming. Here, we propose an approach to define and…