Risk Management
This paper considers an optimal control of a big financial company with debt liability under bankrupt probability constraints. The company, which faces constant liability payments and has choices to choose various production/business…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
After the shocking series of bankruptcies started in 2008, the public does not trust anymore the classical methods of assessing business risks. The global economic severe downturn caused demand for both developed and emerging economies'…
We consider portfolio selection when decisions based on a dynamic risk measure are affected by the use of a moving horizon, and the possible inconsistencies that this creates. By giving a formal treatment of time consistency which is…
We study coherent risk measures which are time-consistent for multiple filtrations. We show that a coherent risk measure is time-consistent for every filtration if and only if it is one of four main types. Furthermore, if the risk measure…
One possible way of risk management for an insurance company is to develop an early and appropriate alarm system before the possible ruin. The ruin is defined through the status of the aggregate risk process, which in turn is determined by…
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved…
We extend the Vasi\v{c}ek loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and…
This paper considers optimal control problem of a large insurance company under a fixed insolvency probability. The company controls proportional reinsurance rate, dividend pay-outs and investing process to maximize the expected present…
We examine three methods of constructing correlated Student-$t$ random variables. Our motivation arises from simulations that utilise heavy-tailed distributions for the purposes of stress testing and economic capital calculations for…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
The model is aimed to discriminate the 'good' and the 'bad' companies in Russian corporate sector based on their financial statements data based on Russian Accounting Standards. The data sample consists of 126 Russian public companies-…
We review different approaches for measuring the impact of liquidity on CDS prices. We start with reduced form models incorporating liquidity as an additional discount rate. We review Chen, Fabozzi and Sverdlove (2008) and Buhler and Trapp…
We shall provide in this paper good deal pricing bounds for contingent claims induced by the shortfall risk with some loss function. Assumptions we impose on loss functions and contingent claims are very mild. We prove that the upper and…
The intention with this paper is to provide all the estimation concepts and techniques that are needed to implement a two-phases approach to the parametric estimation of probability of default (PD) curves. In the first phase of this…
We analyze the errors arising from discrete readjustment of the hedging portfolio when hedging options in exponential Levy models, and establish the rate at which the expected squared error goes to zero when the readjustment frequency…
This paper gives an overview of the theory of dynamic convex risk measures for random variables in discrete time setting. We summarize robust representation results of conditional convex risk measures, and we characterize various time…
We study the risk assessment of uncertain cash flows in terms of dynamic convex risk measures for processes as introduced in Cheridito, Delbaen, and Kupper (2006). These risk measures take into account not only the amounts but also the…
We analyze operational risk in terms of a spin glass model. Several regimes are investigated, as a functions of the parameters that characterize the dynamics. The system is found to be robust against variations of these parameters. We…
The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…